German 10-year yields move back into negative territory

Chart of the week

On 22 March 2019, yields on 10-year German government bonds turned negative for the first time since October 2016. The drop came after flash PMI data for March showed a fall from 51.9 to 51.3. The index now sits just above its January 2019 level. However, the manufacturing PMI (1) grabbed the most attention by falling to 47.6 for Europe and to 44.7 for Germany, the lowest figures since 2012-2013.


These PMI releases only accentuate a trend that had already been forming in recent weeks on the back of a change in central bank rhetoric. In autumn 2018, both the Fed (2) and the ECB (3) were intent on normalising monetary policies, but their most recent announcements have signalled a policy pause.

Real interest rates on 10-year German government bonds are currently hovering around -1.25%, slightly higher than the low seen in April 2015 when the ECB first embarked on its quantitative easing programme.

So, is the current economic picture in line with a further fall in rates? For that to happen, inflation expectations would undoubtedly have to fall further, which seems unlikely given that wage increases in the Eurozone are currently accelerating.

(1) The Purchasing Managers Index is a composite indicator of a country’s manufacturing activity. It is sometimes referred to as the PMI or with the expression “PMI index” for the English purchasing managers index.

(2) The U.S. Federal Reserve is the U.S. central bank.

(3) The European Central Bank is the main monetary institution of the European Union.

The opinion expressed above is dated March 22th, 2019, and liable to change.

This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS.

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Julien-Pierre Nouen

Directeur des études économiques et de la gestion diversifiée