On the question of US markets and negative interest rates, we see the possibility that government bonds and agency securities could trade down to the zero bound, but the private bond and asset backed securities markets in the US are unlikely to follow.
For US banks, the prospect of zero or negative yields on government and agency securities represents a dire threat and illustrates the idiocy of negative interest rates as a deliberate public policy.
Significantly, with the ECB's deposit rate hovering at negative 0.4%, incoming ECB chief Christine Legarde says that negative rates have helped Europe more than they've hurt and that more may be necessary.
"On the one hand, banks may decide to pass the negative deposit rate on to depositors, lowering the interest rates the latter get on their savings. On the other hand, the same depositors are also consumers, workers, and borrowers. As such they benefit from stronger economic momentum, lower unemployment and lower borrowing costs. All things considered, in the absence of the unconventional monetary policy adopted by the ECB - including the introduction of negative interest rates - euro area citizens would be, overall, worse off."
Like her counterparts in the US, Legarde repeats the nonsense that negative rates actually encourage credit creation and consumption, when if fact most of the historical correlations between interest rates and consumption have long ago broken down.
As we wrote in National Mortgage News in July: "As with the once trusted connection between employment and inflation, the tie between interest rates and housing credit seems broken." If anything, negative rates seem to feed caution by consumers and a flight to quality among global investors even as global stock indices hit new astounding highs.
Another point of conversation at Leen's was the future direction of interest rates in the US. The narrative coming from the financial media says that rates are sinking to zero and beyond, but we reminded the collected pundits that these same analysts were calling for three rate cuts by the FOMC this year.
https://www.zerohedge.com/news/2019-09-03/debt-deflation-dangers-feds-superman-complex
For US banks, the prospect of zero or negative yields on government and agency securities represents a dire threat and illustrates the idiocy of negative interest rates as a deliberate public policy.
Significantly, with the ECB's deposit rate hovering at negative 0.4%, incoming ECB chief Christine Legarde says that negative rates have helped Europe more than they've hurt and that more may be necessary.
"On the one hand, banks may decide to pass the negative deposit rate on to depositors, lowering the interest rates the latter get on their savings. On the other hand, the same depositors are also consumers, workers, and borrowers. As such they benefit from stronger economic momentum, lower unemployment and lower borrowing costs. All things considered, in the absence of the unconventional monetary policy adopted by the ECB - including the introduction of negative interest rates - euro area citizens would be, overall, worse off."
Like her counterparts in the US, Legarde repeats the nonsense that negative rates actually encourage credit creation and consumption, when if fact most of the historical correlations between interest rates and consumption have long ago broken down.
As we wrote in National Mortgage News in July: "As with the once trusted connection between employment and inflation, the tie between interest rates and housing credit seems broken." If anything, negative rates seem to feed caution by consumers and a flight to quality among global investors even as global stock indices hit new astounding highs.
Another point of conversation at Leen's was the future direction of interest rates in the US. The narrative coming from the financial media says that rates are sinking to zero and beyond, but we reminded the collected pundits that these same analysts were calling for three rate cuts by the FOMC this year.
https://www.zerohedge.com/news/2019-09-03/debt-deflation-dangers-feds-superman-complex
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