Deflation expectations are well anchored – will Draghi deliver?
ECB president Mario Draghi began accepting that low inflation is not solely related to temporary factors, but also to changes in expectations. He also hinted of imminent action regarding an ABS program (aka QE or printing euros). The current level of inflation, 0.4%, is too just too far from the ECB’s mandate, and improvement is out of sight.
The German 10 year bond year yield fell below 0.90% and other euro-zone countries are also experiencing ever lower yields. Does this reflect expectations for falling prices or is the market front running buys of bonds by the ECB?