Sunday, October 25, 2020

Tag: The not-so-crazy world of negative interest rates

The not-so-crazy world of negative interest rates

by JP Koning, BullionStar:

A few years ago when I was working at a bank, I asked the bond trader who worked next to me what he thought about the newish phenomenon of negative interest rates. “Rate are only negative cause they’re messing around in our markets!” he whispered indignantly. By “they” he meant central bankers.

Was the bond trader right? Are negative interest rates an artificial phenomenon that central bank technocrats have foisted on the world? Or can interest rates naturally turn negative, of their own accord? (In this post I’ll be referring to real interest rates here, not nominal rates. If you have a bond that yields 0.5% per year, but inflation is 1%, then the real, or inflation-adjusted rate, is -0.5%).