German 10-year bond yield trades in positive territory for the first time since May 2019

Borrowing costs for the German government continued their push higher on Wednesday, with the benchmark 10-year bund yield trading in positive territory for the first time in nearly three years.

May 2019 was the last time that German 10-year yields were above zero, when accommodative policy from the European Central Bank started to pressure interest rates lower. Negative yields meant that investors were effectively paying the German government to lend it money.

The ECB is currently behind on its normalization path, compared to the Federal Reserve and the Bank of England, but surging inflation and wider moves in the global bond market have now helped to push yields above zero.

Euro zone inflation hit a new record high in December, raising more questions about the ECB‘s monetary policy. The central bank said last month that it would be cutting its monthly asset purchases, but vowed to continue its unprecedented level of stimulus in 2022.

Central bank policy in times of financial stress usually focuses on the bond market. The central banks buy up sovereign bonds, reducing their yields, which then lowers the cost of borrowing for the government and also lowers interest rates for all sorts of loans and mortgages.

But the bounceback from the coronavirus pandemic has seen consumer prices soar amid this easy policy. And now central banks are looking to unwind their stimulus to try to cool down inflation. The Bank of England has already hiked rates by 15 basis points.

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