Europe's bond yields lowest since 15th century Genoa on deflation, Russia risk

German, French and Dutch yields have been sliding for months as the eurozone recovery wilts and several countries flirt with recession, but the latest plunge reflects a confluence of forces. “Investors may fear that the worsening tensions with Russia could be the external shock that finally pushes the eurozone into a deflation trap,” said Simon Tilford, of the Centre for European Reform.

European diplomats reached a deal on Tuesday on “tier 3” sanctions aimed at shutting Russian banks out of global capital markets and slowly suffocating the Russian economy, though the original plan to limit technology for oil and gas exploration has been diluted. Creditors have already frozen a $1.5bn loan for VTB bank due to be agreed last week.

The European Commission said the measures are likely to cut 0.3pc of GDP off EU economic growth this year, and 0.4pc next year, even if the crisis is contained without a serious disruption of energy supplies. “This is a significant hit to growth. It implies such low growth in parts of southern Europe that it makes it almost impossible to arrest the rise in debt ratios,” said Mr Tilford.