German Yields Falling Toward 1% Shows Japan-Style Risks Building

Germany is on the brink of joining an exclusive club of nations able to borrow for a decade at less than 1 percent. For strategists predicting such a scenario, that’s because the European Central Bank isn’t doing enough to prevent a Japanese-style deflationary spiral from taking hold.

Investors are snapping up Europe’s benchmark securities as they judge the ECB’s stimulus measures insufficient to boost an inflation rate that’s less than half its target. Even after the central bank cut its refinancing rate to a record, introduced a negative deposit rate and announced targeted lending in June, market gauges of inflation expectations are falling. A report today showed German investor confidence declined this month to the lowest level since December 2012.