When things can't get any worse, they turn negative
TO THE long list of economic mysteries can now be added interest rates. They have been at rock bottom, as everyone knows. But now we have encountered something novel: negative interest rates. Lenders are actually paying for the privilege of allowing someone to borrow their money. It is occurring outside the United States, and the Federal Reserve's next move is expected to be raising rates. Still, there is no ironclad reason that it could not happen here.
Low rates are old hat. Here is what Bloomberg showed on a recent day: Deposit rates for US savers averaged 0.72 per cent for one-year certificates of deposit (CDs) and 1.5 per cent for five-year CDs. On a 10-year US Treasury bond, the yield was 2 per cent. Abroad, some rates were lower. German 10-year bonds were 0.37 per cent. British and Spanish 10-year bonds were about 1.6 per cent.
Meanwhile, borrowers benefit. Rates on five-year car loans were 3 per cent; on 30-year fixed rate home mortgages, rates were 3.9 per cent. But negative rates? How can that be?
KEYWORDS IN THIS ARTICLE
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
Columns
‘Competition for talent’ a poor excuse to keep key executives’ pay under wraps
OCBC should put its properties into a Reit and distribute the trust’s units to shareholders
Why a stronger US dollar is dangerous
An overstimulated US economy is asking for trouble
Too many property agents? Cap commissions on home sales
Time to study broadening of private market access