An article in the FT takes a closer look at the impact of negative rates and what central banks might be getting themselves into
The run into negative rates has come relatively swiftly for a lot of central banks. It's not a new move but it's seemed to come with a minimal amount of planning for central banks like the ECB, certainly less than QE did.
The FT has a very interesting article running the rule over central banks who have, or could go, negative and the implications. Those are pretty varied and wide ranging. At a country level it obviously causes flows to go chasing yield. With the door closing on earning money from parking it at a central bank, the money has to find a home elsewhere.
Come down a few levels and there's issues with how far banks go in passing on the costs to savers. Savers have suffered from a lack of interest earnings and going further can cause all sorts of knock on problems from excessive risk taking to falls in spending, as consumers stuff their mattresses with cash, seeing it as the only real safe place to put it.
In my view the greatest danger is that money is going to be forced into greater risk assets to increase yield. The central banks shutting one huge door on where money can go could lead to other doors slamming shut too. If you can't park it at a central bank then bonds are one obvious choice, if yields tumble then the latecomers have to look elsewhere, further and further down the list the money will go to seek the relatively safe yields. Once those have been used up the options then start increasing in risk.
I don't know if we're at the start or where it ends but the chances are it won't be in a good place
Anyway, enough of me rambling on, have a read and draw your own conclusions. It's not gated so fill your boots.
