Call it a crash? The price of Germany’s 10-year government bond, one of the most “conservative” investments in the world, dropped 7.5% in the seven weeks since April 20. And the price of the 30-year bond plunged 23%.

You can always hold it to maturity, have your money tied up for 30 years with almost no income, and let inflation whittle down its purchasing power.

Investors who’d bought into the ECB’s negative-yield absurdity, the sky-is-the-limit-for-bonds idiocy, pandemic deflation hype, and QE as a miracle wealth generator late last year and through April 20 this year are now sitting on sizeable losses.

And this, even as the ECB has accelerated its QE program whose official purpose it is to inflate asset prices, drive yields into the negative, and create that elusive “wealth effect” that performed such enormous wonders in the US economy. Ah yes, and flog savers until their mood improves. Draghi himself will be doing that until his arm gets tired.

Eurozone stocks took off in mid-October, and bonds had already been rising, when the ECB’s latest wave of money-printing began to take shape in people’s imaginations, though it was still only a well-nurtured and superbly managed collection of suggestions and rumors. Everyone was front-running this unannounced no-holds-barred QE.

In January when Draghi actually announced QE, it turned out to be larger “than expected.” Eurozone stocks and bonds soared further. By April 10, the German DAX had shot up nearly 50% in six months to 12,391, outperformed only by the insanity transpiring in Chinese stocks. The 10-year Bund rose to ludicrous heights, and yield dropped to within a hair of 0%. An absurdity. It came to be called, “the short of a lifetime.”

Then the ECB’s magic curdled. Stocks and bonds, just as they’d risen together, began to drop together. By mid-May, the ECB bowed to the loudly whining financial markets and announced that it would frontload QE by increasing the weekly purchases before the summer. The mini QE on top of QE calmed the frazzled nerves and caused stocks and bonds to tick up.

Then it all came unglued again.

So last week, the 13th week of QE, the ECB bought €15.37 billion in assets, the third week in a row of increased buying. As of June 5, it had added to its balance sheet €159.6 billion in government debt, €87.3 billion in covered bonds, and €7.5 billion in asset-backed securities, for a total of €254.4 billion.

But this did nothing to slow down the bleeding in Eurozone stocks and bonds. Since April 20, the price of the German 30-year Bund has plunged 23%. Stocks followed in nervous ups and downs, with the DAX now down nearly 12% from its all-time high in April.

The ECB should be frazzled. Its grandiose plans about the “wealth effect” have run aground. But no….

“Success story” is what ECB Governing Council member and governor of the National Bank of Austria, Ewald Nowotny, called this debacle on Monday. The rising yields – and therefore dropping bonds and imploding wealth effect – across the Eurozone was just part of “normalization” because the QE program was already having the “desired effects,” inflation was going in the right direction, and he saw some “positive development” in the Eurozone economy.

“That seems to work,” echoed fellow ECB Governing Council member and governor of the Bank of France, Christian Noyer, on Monday, concerning the ECB’s QE program. “The prospects for this year for the euro zone are much bigger,” he said. “We expect a growth rate of 1.5%.”

So to heck with the until now coddled investors?

Those who look to the ECB to stop the bloodletting with some new magic suddenly are not finding much sympathy. QE is a “success story.” So what if 30-year bonds are crashing and if stocks are swooning! Those who believed the deflation hype and bought these assets based on it, well, they’re on their own – that’s what the ECB seems to be saying.

And that would be a brutal turning point: first, luring investors into buying these already overvalued assets, and then abandoning them in cold blood. But central banks have a history of doing that. They give the smart money enough time to get out of those position and to short the highflyers, while the true believers and retail investors with these funds in their portfolios are left holding the bag.

But there is more at play: This is the first  major instance since the Financial Crisis when a massive QE program, after significant success in inflating asset prices, suddenly fails and triggers the opposite.

This failure might be an indication that central banks have reached the limits of their ability to inflate the bond and stock markets. If they’re starting to lose control over the financial markets, after all this money-printing and interest-rate repression designed to control the financial markets, well then, investors would be screwed.

The bond-market swoon extended beyond the Eurozone, wiping out $1.2 trillion in value globally since April. The 10-year US Treasury price dropped 3.2%; 30-year Treasuries dropped over 9%. And the potential for further losses is enormous. Read…  It Scares “the Hell Out Of” Bill Gross, Yet in Last-Ditch Effort, Companies Sell More Bonds than Ever

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.