Bundesbank President Jens Weidmann has been telling every public forum that will have him that quantitative easing has to come to an end some time, and that time will be 2018.
There’s no doubt that the ECB’s aggressive bond-buying program has depressed German bond yields. German yields have to rise. But when? That leaves investors in a quandary: the difference between US and German 10-year government bond yields is currently close to 2%. If you sell German bonds and buy America bonds, for example, you give up 2% in yield, which is a lot in this market. If you don’t, you risk getting steamrolled by the inevitable rise in German yields, whenever that materializes.
Investors are dodging in and out of short positions against German Bunds and against the Euro. As John Maynard Keynes said, the market can stay irrational longer than you can stay liquid.