In the euro area, they recently surpassed their pre-pandemic level. In other words, to the extent that lower real yields actually reflect growth concerns, they would point to a decoupling between sovereign bond market pricing on the one hand and stock markets’ and analysts’ growth expectations on the other.
The monetary policy non-puzzle The second factor that may explain current bond market conditions relates to monetary policy. There are two ways in which monetary policy may help explain current bond yields. The first is through the persistent effects of asset purchases. The ECB, the Federal Reserve System and other major central banks have acquired a substantial amount of assets during the crisis.