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Germany's Bond Market Is a Global Problem

Germany has a dreadful case of the Vapors. For those who were not brought up in the 1980s Britain, what I mean is that, to quote the immortal words of the great one-hit wonders The Vapors, Germany is turning Japanese. Its problem is now so extreme that before long Japan might have to start worrying about turning German.

Japan has been in the grips of dreadful deflationary slump that started to set in once its great equity and property bubble burst at the beginning of the 1990s. This has pulled yields on Japanese government bonds – JGBs - ever lower, and no amount of attempts by successive governments and successive governors of the Bank of Japan have been able to snap the country out of  this downward spiral in yields. Indeed, it was the BOJ that gave the world the concept of quantitative easing , or QE, buy purchasing bonds in a bid to push down yields even further and flood the financial system with cash in an effort to jolt the economy.