Magazine article Modern Trader

Inflation Specter Haunts German Bund

Magazine article Modern Trader

Inflation Specter Haunts German Bund

Article excerpt

The stunning February collapse of the West German bond market serves as a reminder that inflation fears can be a potent market factor.

Commenting on "an improving outlook for the world bond market," The International Bank Credit Analyst warned: A sustainable bond market rally is unlikely until there is a clear sign ... that economic activity has peaked and inflation is on the wane."

Arnold X. Moskowitz, director of investment strategy for County NatWest Inc., says that's just what happened in the West German market: "The bund is forecasting inflation."

Adds Maureen E. O'Toole, first vice president and director of research for the financial futures division of Rodman & Renshaw Inc., People bought bonds expecting a price spike and then got scared.'

The inflationary potential of the acceleration of Germany monetary unity is a crucial factor to the bond market.

In October, the Bundesbank took anti-inflation steps, anticipating key January wage negotiations. By midJanuary, the Germans were "looking at some sticky inflation numbers." In early February, German leaders realized they had to step up monetary union to thwart migration from East to West. But the Bundesbank disagreed with the finance ministry on how to handle it. The March elections in the East made accord on the cur-rency problem imperative.

The inflationary potential of the monetary union depends, Moskowitz says, on the East German Ostmark conversion rate. With East German savings of 130-150 billion Ostmarks, a 1: I conversion rate would raise the money supply by 30% and result in double-digit inflation. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.