Are the yields realistic?

Last Monday European Central Bank (ECB) has started off its bond purchase program to buy securities worth € 60 billion per month and continue it at least till September 2016.

• ECB so far has only bought € 9 billion (approx.) last week but investors since the announcement have pushed the yields to record low and in negative territory for many countries.

• German govt. bonds are now in negative yield up to six years. French govt. bond yields are negative up to four years. Investors are ready to lend money at negative rates which will result in a loss if held till maturity.

• Some arguments exist like selling the ECB at higher premium or for banks to park the money at a better rate or even like If deflation sets in real yields are still positive.

However these yields are not looking justified at all even with ECB in the argument.

• Austrian govt. 47 year bond is trading below 1%, down from previous 4% in this frenzied buying.
  
  
• German 30 year yield down at 0.67% seeing mega rally in bond prices.
  
  
• Italian and Spanish debt are seeing yields of around 1%, a remarkable turnaround in bond prices from 2011 crisis when yields were chasing 8% level.

Analogy -

• Current bond frenzy goes well beyond the ECB purchase coverage of 30 years.
  
  
• Massive bond buying has flattened the risk curve. Political risks associated in Spain and Italy is not the same but market chooses to ignore it for now.
  
  
• However it will be foolish to challenge the frenzy and bond rally in the near term but will not end well as long term returns on these securities make little sense.