Germany's Schaeuble welcomes rise in German Bund yields

German Finance Minister Wolfgang Schaeuble told Reuters that the recent rise in the yields of long-term German government debt was a move in the right direction and boded well for life insurers. Last week, Germany's 10-year borrowing costs rose at a debt auction for the first time since January 2014. Yields on Bunds, the euro zone benchmark, are now at 0.67 percent after hitting a record low of 0.05 percent last month.
"That's not a cause for concern but rather a cause for hope," Schaeuble said in an interview published on Thursday. He added that interest rates around the zero mark and deflation gave him more reason to worry than anything else. "The development that the euro zone as a whole is currently back out of negative inflation rates and that interest rates for government bonds have increased somewhat again is, for me, a reason to pay close attention but not a reason for concern," he said.
Euro zone prices were flat on the year in April after falling the previous four months. Inflation in the single currency bloc is therefore still well below the European Central Bank's target of just below 2 percent for the euro zone. Rock-bottom interest rates have posed a major challenge to life insurers by reducing the returns they can make on investments and making it more difficult to profitably meet obligations to policyholders coming due years - sometimes decades - in the future. But Schaeuble said the recent increase in Bund yields was a "good sign" for them.
He said the German government was observing very closely what it could and needed to do but added that he could not offset the problems posed by low interest rates with government subsidies. Schaeuble was not concerned about the performance and stability of the German financial sector after ratings agency Fitch downgraded some major German banks this week, including Commerzbank and Deutsche Bank.
"We have no reason to worry about the performance capability of the German sector," he said, adding that it remained competitive overall. Schaeuble said the euro had become more resilient and would remain "strong" and "reliable" despite its depreciation in recent months. He said G7 finance ministers and central bank chiefs meeting in Dresden next week would possibly discuss, on an informal level, the increase in the yuan's importance and the Chinese currency's possible inclusion in the International Monetary Fund's currency basket. The participants will also discuss how to improve sustainable growth through the interplay between economic and monetary policy, as well as addressing the limits of monetary policy and how to prevent new bubbles from forming.