Global concerns about deflation continue to stir in 2015. Disinflationary, if not outright deflationary pressures abound globally. And with the ECB expected to launch its own form of QE with an announcement tomorrow, the markets are getting jumpy. Note that the Wall Street Journal cited sources saying the ECB bond buying program could be around 50 Billion Euros per month.
That said, the markets are still waiting for details and mechanics. And, as I wrote about in mid-December, global deflationary pressures are real. Will the ECB bond buying program be “BIG” enough to assuage deflationary concerns and will it satisfy market expectations. No one knows for sure so we will have to wait for tomorrow’s official announcement and the subsequent response from the markets.
US Treasuries could very well be the beneficiary of EURO zone QE, adding to the strength that has been prevalent since the December of 2013. The reason being, although rates are considered low in the US, sovereign debt yields in Europe are much lower. And, as we know all to well, investors will seek the highest relative yield that offers stability at the same time. See the charts below – click to enlarge.
30 Year U.S. Treasury Bond Price heading into ECB bond buying announcement
10 Year Treasury Yields – U.S. vs German
U.S./German 10 year Treasury Yield Ratio
How this all shakes out will be interesting. In the meantime, keep an eye on those bond yields. Thanks for reading.
Follow Karl on Twitter: @Snyder_Karl
No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
