With German government yields collapsing, the two-year rate just touched a new low today - negative 6bp. The 3-year yield is negative as well.
|German 2yr yield|
This is now impacting the currency markets. As an example the Germany-Japan rate differential at the short end of the curve is widening - the 2-year differential (Japan rate minus Germany rate) is at a record.
In fact some are looking at this as the new carry trade, long the yen short the euro - the reverse of the original carry trade. And that is pushing up the value of the yen, particularly against the euro. Euro-yen has touched a new multi-year low today.
|Euro-yen (number of yen per one euro)|
This currency move will help support German manufacturers at the expense of those in Japan. In that sense the ECB has accomplished something - making Germany more competitive using currency devaluation (though it's not clear that this was their intent). Welcome to the world of negative rates and currency wars.