No Fear of German Inflation as Yield Drops Below 3%

Angela Merkel’s government is giving Germany something not achieved during the Kaisers, two World Wars or the development of the modern bond market: An interest rate of less than 3 percent on money borrowed for 30 years.

Germany’s 30-year bond yield dropped below that level for a second day after touching 2.96 percent yesterday. The sluggish global recovery from recession means German consumer prices will rise just 0.9 percent this year, according to International Monetary Fund forecasts, less than half the average since 1980. In the U.S., Pacific Investment Management Co. sees a 25 percent chance of a sustained period of falling prices, and the two-year Treasury note yield has also declined to a record low.