To date, the U.S., unlike most of the globe, has avoided the specter of negative interest rates. But it looks possible or perhaps even likely that given the current confluence of factors– the coronavirus coupled with a collapse of OPEC– a new era is about to be ushered in. Coronavirus is arguably the most deadly contagion since the Black Plague of the sixteenth and seventeenth centuries. A different kind of global contagion might be at hand. Having maxed out last September with global outstandings of $17 trillion of debt bearing negative interest rates, the markets bottomed in February with a reduction to just shy of $11 trillion.
Now things are about to change once again and the inevitability of negative interest rates seems to be unavoidable in the U.S. While the full impact of the Coronavirus (covid-19) is unknown at this time, central banks around the world stand ready to further easing. But with rates outside the U.S. already at zero or below perhaps it could just be a matter of time before the Fed has no choice but to join the fray jumping over ZIRP and going directly to NIRP. This could be the crowning achievement (pun intended)of the Coronavirus as global outstandings have already ratcheted back up to north of $14 trillion. We may be in for a paradigm shift of biblical proportions as the benchmark 10-year Treasury has already dipped below 1% and could be flirting with negative interest rate territory should the impact result of a global recession takes its toll. Markets are skittish and not always rational: 16% of those recently interviewed thought Coronavirus is associated with Corona beer whose stock was down almost 8% due to the conflation of a virus and an unfortunately named beer company.