The Daily Telegraph reports that bond yields of the advanced EU economies have sunk to their lowest level on record surpassing even the lows of the great depression in the early 1930s as well as the periods of the strong deflation in the XIX century. The similar plunge was last recorded in the Republic of Genoa nearly 600 years ago.
To be precise, German 10-year bond yields touched an all-time low of 1.11% during the session on July 30. French 10-year bond returns have also plummeted to a record low of 1.5%. Such unprecedented deterioration of yield has been triggered by headwinds in the EU economic recovery. Importantly, the economic growth slowdown has been caused by the package of tough sanctions against Russia as many eurozone’s economies are highly dependent on Russia.
So, investors are heading for the safety of German Bunds, Europe's premier safe retreat. In its global bond portfolios, investment firms favor German Bunds over U.S. or U.K. sovereign debt. Meanwhile, low key interest rates at the EU central banks could indicate that the eurozone might face both recession and deflation. The latter would bring the most losses to heavily indebted countries.
In particular, Italy could be exposed to a risk. Its credit default swap has grown over 30% for the recent month.
