Negative-yielding bonds are taking on an ever-greater chunk of the global fixed income universe and are still failing to lift economic activity. But the market continues to call for monetary policy easing from the European Central Bank and the Federal Reserve. It is not clear why central banks continue to acquiesce.

In fairness, for the ECB, the requirement for policy action is clear, given that Germany is teetering on the brink of recession. But with Bund yields already negative across the entire curve, pushing them even lower is unlikely to forestall deflation, encourage lending or nurture an economic recovery.

Years of aggressive monetary easing by the ECB has hacked away at interest rates. Negative deposit rates, rather than supporting bank lending, have instead hindered it, rendering the central bank less able to respond effectively to negative economic events with traditional monetary policy tools. Monetary policy has reached the limits of its effectiveness.