Beyond the French election factor, Bloomberg notes that the rally in German bonds (and declining yields) can also be attributed to the “European Central Bank’s stepped-up purchases below its old deposit-rate floor.” Bloomberg also said recently, “Citigroup Inc. is predicting yields that could drop to minus 1 percent and beyond.”
A recent Forbes article, “Will the French election break up the Euro?,” explored some of the momentous political factors at play in France:
Global markets have seen several recent developments that have to be considered at least in part related to the French elections: 1. German two-year bond yields have moved to their lowest all-time levels as investors move assets to what is considered the most stable European economy, despite the recent poll declines for Angela Merkel’s government (Figure 1). 2. The euro keeps falling in relation to the U.S. dollar (Figure 2). 3. The price of gold has generally acted in positive fashion since the beginning of the year as part of a flight to safety trade (Figure 3).