German 10-Year Yields Just Dropped Below Zero

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Includes: BUNL, BUNT, GGOV
by: Lars Christensen

Here we go… 10-year government bond yields just dropped below zero.

Negative yields in Germany

Does that mean that euro monetary policy conditions are "ultra easy"? Nope, certainly not - it is rather the opposite.

Let's once again quote from Milton Friedman's 1998 article about Japan Reviving Japan:

Initially, higher monetary growth would reduce short-term interest rates even further. As the economy revives, however, interest rates would start to rise. That is the standard pattern and explains why it is so misleading to judge monetary policy by interest rates. Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.

The story is the same - monetary policy is TIGHT and is becoming tighter as the demand for money increases faster than the supply of money.