The reaction of euro-zone investors to the ECB’s monetary policy

Faced with very low (or negative) yields on government bonds, euro-zone investors have switched to: Non-currency-hedged investments in dollars; Illiquid assets (real estate, infrastructure, private equity). This shift by investors creates new dangers: currency risk, when it is likely that the dollar will depreciate against the euro; liquidity risk if investors’ liabilities become more liquid than their assets; the risk of a bubble in illiquid assets.