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Monday, March 09, 2015 1:55 PM

Draghi's Goal: Higher inflation and Negative Yields; ECB’s Asset Purchases to Outstrip Supply 3-1; Is There a Catch?

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In the totally mad goal of creating "confidence" via higher inflation, the ECB's €1.1 Trillion Buying programme Begins.

Although the ECB’s bond buying programme is intended to lift inflation and boost confidence, the rise in bond yields that usually accompany higher inflation may not manifest due to the size of the plan, say bankers.

The size of the eurozone’s quantitative easing programme is expected to squeeze the supply of debt traded on markets to such an extent that yields could instead continue to fall.

Zoso Davies, credit strategist at Barclays, said the ECB’s asset purchases would outstrip the net supply of bonds in the targeted area by a factor of three-to-one, shrinking them by €840bn.
ECB, Bank of Japan to Buy 100% or More of Net Issuance

Last October, Bloomberg reported BOJ Stands Ready to Buy Every New Bond Abe’s Government Issues.

Starting today, the ECB will top that for Germany. Zerohedge provides this chart.

Yields on German bonds are already negative out to 6 years.

German 6-Year Bonds

German 7-Year Bonds

Come and Get It

If you want positive yielding German bonds, you can still get 0.018% on the German 7-year bond. This deal will not last long.

Yes, once again I have a fitting musical tribute.

Link if video does not play: Beatles, Come and Get It

If you want it, here it is
Come and get it
Make your mind up fast

If you want it anytime I can give it
But you better hurry 'cause it may not last

Did I hear you say that there must be a catch?
Will you walk away from a fool and his money?

If you want it, here it is
Come and get it
But you better hurry 'cause it's going fast

Thing of the Past

Positive rates on the German 7-year bond will soon be a thing of the past.

How low will negative rates get?

Place your bets. Right now, 1-month bonds yield -0.31%.

Before this madness ends we could easily see negative yields all the way out to 10 years or beyond.

Somehow this madness is supposed to inspire confidence. I suggest it won't.

Mike "Mish" Shedlock

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