European government bond yields are at incredibly low levels. But rather than see that as a sign of trouble, traders are cheering the low yields, as it presents another reason for investors to buy stocks rather than bonds.
The German 10-year yield fell to 0.051 percent on Friday, after German bunds maturing in up to eight years traded in negative-yield territory. Swiss 10-year yields continue to sit well below zero percent, a strange condition in which an investor is technically paying the government to hold on to their money for 10 years.
The further drop in yields comes as the European Central Bank embarks on an asset-purchasing program designed to stimulate the European economy and increase inflation. The ECB has said it is willing to buy negative-yielding bonds as part of the program.
Since a large reason that people buy financial assets is to produce income, the drop in yields makes stocks more attractive by comparison, traders say.
"Low yields should be positive for stocks in America because stocks are a competing class. And dividend-yielding stocks are yielding better than most of the sovereign yields, of course," said Boris Schlossberg of BK Asset Management.
Examining the charts of European yields, Richard Ross of Evercore ISI said that "the bottom is nowhere in sight, and importantly, that has a bullish read-through here in the U.S. Those European rates are acting as an anchor for our own interest rates here."