www.NegativeInterestRates.com

From the Guardian Editorial Board

Small events can take on great significance. One sleepy summer nine years ago, the French bank BNP Paribas suspended trading in three of its money-market funds. The announcement caused a tremor in financial markets, but raised barely an eyebrow elsewhere. Little more than a fortnight later, trading was resumed. Maybe, just maybe, someone at BNP thought that would be the end of the story. They can’t have thought that historians would take that initial announcement on 7 August 2007 as the start of the credit crunch. The suspension of trade was such an unusual move, and came as the worries over subprime mortgages had built to a critical point. Trust in the financial system eroded, then crumbled entirely.

The historic slump that followed has helped produce all kinds of unforeseeables: Britain’s exit from the EU, the ascent of Nigel Farage, Jeremy Corbyn’s leadership of the Labour party. And perhaps, just perhaps, the next chapter began this week, with an innocuous-seeming letter from a high-street bank to its customers.

https://www.theguardian.com/commentisfree/2016/jul/26/the-guardian-view-on-negative-interest-rates-positives-and-minuses

Long-term returns for U.S. public pensions are expected to drop to the lowest levels ever recorded, portending deeper pain for states and cities as a $1 trillion funding gap widens.

Twenty-year annualized returns for public pensions in the U.S. are poised to decline to 7.47% once fiscal 2016 results are released in coming weeks, according to an estimate from Wilshire Trust Universe Comparison Service, which tracks pension investment returns.

That would be the lowest-ever annual mark recorded by Wilshire, which began tracking the statistic 16 years ago. In 2001, near the height of the dot-com boom, pensions’ 20-year median return was 12.3%, according to Wilshire.

http://www.wsj.com/articles/pension-returns-slump-squeezing-states-and-cities-1469488579

http://www.telegraph.co.uk/news/2016/07/25/savers-fear-negative-interest-rates-as-natwest-warns-businesses/

Nealy 8 years after, the financial markets have not fully recovered and are entering a new “experimental” realm of negative interest rates.  The words “experimental” and “central banking” never belong in the same sentence… (editor’s note)

Here is a fascinating analysis about whether the Fed could have rescued Lehman.  Conclusion: YES

https://www.youtube.com/watch?v=NIBDVH8fRqc

The corporate CDS market seems to be substantially more liquid than the cash bond market.  Balance sheet constraints have implications.

While this calculation is subject to many assumptions, it is illustrative of the costs faced by dealers, and helps explain their reluctance to enter into arbitrage trades before spreads reach levels much more negative than in the past: a more negative basis increases the carry earned and makes the trade more economical in light of the capital charges.

see NY Fed Analysis

Denmark’s biggest mortgage bank is warning there’s a risk the housing market may get “out of control,” especially around cities, as long-term negative interest rates make borrowers complacent.

“To be concrete, there is a danger that Danes go blind to the risk of rates ever rising again,” Tore Stramer, chief analyst at Nykredit in Copenhagen, said in an e-mail. “That raises the risk of a major housing price decline, when rates at some point or other start to rise again.”

http://www.bloomberg.com/news/articles/2016-07-21/denmark-faces-out-of-control-housing-market-in-negative-spiral

Negative interest rates could be about to cause some grave side-effects in Denmark. Tore Stramer, chief analyst at Nykredit in Copenhagen, warns that Danes might be struck by a new housing bubble, Bloomberg reports.

According to Stramer, the situation could spiral ‘out of control’ as the prolonged period of negative interest rates makes Danes all the more incautious to the eventuality that rates may rise again in the future.

http://nordic.businessinsider.com/analyst-the-danish-housing-market-risks-spiraling-out-of-control-2016-7/

From the Economic Times…

…Sunil Subramaniam: The quantitative easing, sort to speak, is likely to continue because advanced economies are not showing any signs of revival in the growth. I think the advanced economies are clocking just around 2 per cent GDP growth. Over the next three to four years, also as per the IMF forecast, they are likely to remain at about the same levels.

Tools at the hand of any government are of three types. In the first case, the central bank tries to [rate] cut policy. In the second case, the central bank tries to pump in liquidity through a monetary stimulus — so there is a rate cut and a monetary stimulus.  The third is what the famous economists call ‘pump-priming.’ It is a fiscal stimulus by the government wherein it goes and spends money on infrastructure and other sectors.

http://economictimes.indiatimes.com/markets/expert-view/25-of-worlds-gdp-is-in-a-negative-interest-rate-scenario-sunil-subramaniam/articleshow/53351659.cms

The collapse in global bond yields is not healthy, or normal.

It’s been a big week in the global bond market with the German 10-year bund yield falling below zero for the first time ever, Swiss 30-year debt flirting with negative territory, and U.S. Treasury yields falling to the lowest levels in 16 months.

Currently, more than $10 trillion worth of sovereign debt carries negative yields, according to Fitch Ratings. Another $500 billion of European corporate debt is yielding less than zero as well, according to Reuters.

http://fortune.com/2016/06/17/janet-yellen-negative-interest-rates/

Negative interest rates in the U.S. may seem like a far-fetched idea, but the Federal Reserve is telling banks to prepare, just in case.

For the first time ever, the governing agency and U.S. central bank is requiring banks to include, in a round of stress tests commencing this year, to prepare for the possibility of negatively yielding Treasury rates. The scenario is purely hypothetical and not a forecast, according to a Jan. 28 Fed news release .

However, the development is part of a larger scenario of a world where zero rates are morphing into negative rates.

http://www.cnbc.com/2016/02/09/from-zirp-to-nirp-whats-the-feds-next-move.html