Needless to say that's not good, not least of all because we now live in a world in which the bond universe with negative yields continued to grow at an exponential pace, rising rapidly over the past two weeks and reaching a record $16.4 trillion.... ... rising significantly above the previous mid-2016 record high of around $12.2tr. The expansion of the universe of negatively yielding bonds as a percentage of total is shown below: as of the last week, this proportion increased further to around 30.0%, above the mid-2016 record high of 25.8%. Meanwhile, as the world is blanketed by Edwards' Ice Age, one can see the spread of negative rates both in space and in time.
Even if the portion of reserves subjected to deeply negative rates is limited, banks are not immune to a reduction in net interest income, especially if interest rates move deeper into negative territory.
In the Euro area, where lending rates on new business for both households and non-financial companies declined by around 50bp during 2014, declines from late 2015 to mid-2016 when deposit rates were pushed deeper into negative territory, were more modest at around 20bp for NFCs. And while households saw larger declines in mortgage rates, rates for new loans for consumption were essentially flat.
So the evidence from Switzerland, the Euro area and Sweden appears to be that deeply negative policy rates have overall seen little further decline of lending rates as banks, whose deposit rates are largely floored at zero, struggle to avoid depressing their net interest margins further.
For example when we look at household sector savings rates in the US, Euro area and Japan there is little evidence of lower savings rates in the Euro area and Japan, which had introduced negative policy rates in recent years, relative to the US. Similarly there is little evidence that the non-financial corporate sectors of Euro area and Japan have reduced their financial surplus by more than the US since the introduction of negative policy rates in 2014.
Modestly negative policy rates had perhaps an overall positive impact initially, but keeping rates in very negative territory for prolonged periods or navigating to even deeper negative territory could unleash more unintended consequences than benefits.
Finally, in a claim that may spark a vendetta between Panigirtzoglou and Albert Edwards, the JPM strategist concludes that "Negative rates are neither unavoidable nor necessary." As he explains, "Japanization didn't imply negative yields before the BoJ experimented with negative policy rates, following the experiment of the ECB. And negative rates do not appear to have delivered more effective stimulus and helped Japan to exit its longstanding economic malaise."
https://www.zerohedge.com/news/2019-08-17/12-reasons-why-negative-rates-will-devastate-world
Even if the portion of reserves subjected to deeply negative rates is limited, banks are not immune to a reduction in net interest income, especially if interest rates move deeper into negative territory.
In the Euro area, where lending rates on new business for both households and non-financial companies declined by around 50bp during 2014, declines from late 2015 to mid-2016 when deposit rates were pushed deeper into negative territory, were more modest at around 20bp for NFCs. And while households saw larger declines in mortgage rates, rates for new loans for consumption were essentially flat.
So the evidence from Switzerland, the Euro area and Sweden appears to be that deeply negative policy rates have overall seen little further decline of lending rates as banks, whose deposit rates are largely floored at zero, struggle to avoid depressing their net interest margins further.
For example when we look at household sector savings rates in the US, Euro area and Japan there is little evidence of lower savings rates in the Euro area and Japan, which had introduced negative policy rates in recent years, relative to the US. Similarly there is little evidence that the non-financial corporate sectors of Euro area and Japan have reduced their financial surplus by more than the US since the introduction of negative policy rates in 2014.
Modestly negative policy rates had perhaps an overall positive impact initially, but keeping rates in very negative territory for prolonged periods or navigating to even deeper negative territory could unleash more unintended consequences than benefits.
Finally, in a claim that may spark a vendetta between Panigirtzoglou and Albert Edwards, the JPM strategist concludes that "Negative rates are neither unavoidable nor necessary." As he explains, "Japanization didn't imply negative yields before the BoJ experimented with negative policy rates, following the experiment of the ECB. And negative rates do not appear to have delivered more effective stimulus and helped Japan to exit its longstanding economic malaise."
https://www.zerohedge.com/news/2019-08-17/12-reasons-why-negative-rates-will-devastate-world
No comments:
Post a Comment