Markets

Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

It's been pretty hard to square low German bond yields with rising inflation, and this week has finally see the dam break, with 10-year yields soaring. New corporate bond issues were hardly to be seen on Friday.

About Turn
German yields are finally marching to the beat of inflation
Source: Bloomberg

This is only going to give the Bundesbank company in its calls for the European Central Bank to end, or at least severely curtail, its Public Sector Purchasing Program before its current planned expiry at the end of 2017. 

Hello ECB We Have a Problem With You Here
Inflation is anathema to Germans and with elections this September the heat is on
Source: Bloomberg

While President Mario Draghi might feel comfortable looking through a jump in headline inflation, a move above 2 percent for German CPI would be a game changer in efforts to end QE. 

Ever Higher
European inflation expectations have skyrocketed since mid-2016
Source: Bloomberg

Something has to give and for now it is German bonds' incredibly low or negative yields, despite ongoing ECB purchases. Inflation and growth are back, and the end should be in sight for QE. The bigger problem is that when German bonds sneeze, the periphery catches pneumonia. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Marcus Ashworth in London at mashworth4@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net