"This is the start of an earnings recession" has been one of the more persistent bearish arguments over the past year. I was never in that camp and it was arguably never a consensus view, but the current reporting season marks the beginning of the end of this particular reason to be bearish.
Until the European Central Bank (ECB) changes the rules associated with sovereign bond purchases, the duration of its holdings will steadily increase. This introduces a self-reinforcing dynamic. When yields drop, the ECB is forced to buy more, putting further downward pressure on yields.
The European Central Bank (ECB) is facing a conundrum of its own making. Boxed in by a series of constraints on its asset purchase programme, the Governing Council needs to change the rules to continue its bond buying spree. There are not many good options available at this stage.