When everyone was thinking that European Central Bank (ECB) to cut deposit rates by another 10 basis points to -0.3%, and German bonds pricing it, it just started pricing a bit more.
German 2 year yield has fallen to new record low, in anticipation of further stimulus from ECB. Price moved higher, while yield dropped to -0.37%.
There are no obvious catalyst for today's move rather than positioning ahead of and in anticipation of further easing from ECB in December. 2 year yield has been negative since August 2014.
However, it could pose greater problem for Bundesbank. As per the current ECB program, Bundesbank needs to purchase € 10 billion worth of bonds per month. For Germany, yields are now below deposit rate (-0.2%) till 4 years, which means under current program they are not eligible for the bank to buy.
Bundesbank chief is likely to highlight the issue in next governing council meeting as Bundesbank might have to extend duration of the purchase portfolio.
Euro is currently trading at 1.071 against Dollar.


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