German government bonds are cornered

There is vigorous g lobal demand for risk-free assets, due to the high variability of financial markets and the increase in private savings, but Germany’s supply of risk-free government bonds is decreasing . Th is results in excess demand (German government bonds are cornered ), leading to persistently low equilibrium interest rates on these bonds. This situation has important implications: Demand for risk-free bonds shifts to other bonds in the euro zone, including those of countries that are less solid than Germany , such as France; Because the income effect is predominant , Germany’s household savings rate rises sharply; Eventually, investors will not be able to avoid returning to high-yielding risky financial assets: equities, High Yield corporate bonds.