Brexit has crashed German bund yields. Current rules prevent the ECB from buying bonds that yield less than -0.40 percent.
An estimated 800 billion euros of German bonds are not eligible for the EBC's asset-purchase program.
Brexit made the number of German bunds ineligible for ECB QE much worse. Money from across Europe has raced into German bunds pushing the price up, and yields down.
When a bond has a negative yield, the bond investor has to pay to own the bond. Stupid, right? Who would buy a bond, and then have to pay for the privilege of holding it? The idea is that negative yields discourage money from flowing into defensive bonds and instead encourage money to flow into riskier offensive assets that benefit the economy.
The German 15-year bund yield did a gap down after Brexit and continues to fall closer to negative yield:
Brexit pushed the 10-year German bund into negative yield:
Brexit pushed the 9-year bund into negative yield:
Brexit pushed the 8-year bund into negative yield:
Brexit pushed the 7-year bund out of eligibility for ECB QE purchases:
Brexit pushed the 6-year bund out of eligibility for ECB QE purchases:
Jefferies International predicts the ECB could run out of German bonds to buy in its chosen 2- to 30-year bund purchase pool within three months.
Not only is the ECB buying German bunds, it is paying Germany the negative yield too. If more than half of German bunds become ineligible for ECB QE purchases, that's a lot of ECB money not going to Germany. My bet is that the ECB will change the -0.40 yield cap rule.