For instance, negative nominal yields, if applied too long, may act as an anaesthetic to euro area governments. The fiscal space gained from lower debt service costs may slow enactment of necessary fiscal and structural reforms. Brexit could well amplify the above downside risk. The initial market reaction to the Brexit vote was a typical risk-off mode – lower curves, wider spreads, flatter curves.
The UK 10-year gilt yield fell under 1% for the first time in records, while German Bunds yields fell to all-time lows over the period, currently trading in negative territory out to a maturity of 15 years with the 10-year German Bund trades around -0.10%.