Ever since Mario Draghi, head of the European Central Bank, hinted at tightening monetary policy last month, Germany’s blue-chip DAX index seems to have lost its mojo. The prospect of rising interest rates, and of the ECB curbing its billion-dollar quantitative easing program – a monthly purchase of mainly sovereign debt the central bank started in 2015 – threatens to spoil an eight-year stint of rising stock prices.
The reason for the dumpy DAX? German bonds may be back in fashion. “Suddenly there’s an alternative to shares again,” said one Frankfurt trader.
Speaking to an audience of students in Sintra, Portugal, on June 27, Mr. Draghi made comments that some interpreted as a sign the central bank would soon curtail, or even discontinue, its aggressive stimulus package. Since then, stock prices of debt-laden companies have crumbled, while those of firms with surplus cash have surged. German bonds, previously snubbed by investors seeking better returns, have also rallied.