Jim Bianco Comments on Falling (and Negative) Long-Term Interest Rates
Most readers of this blog know that James A. Bianco,
who is President of Bianco Research, is a former Marquette student of
mine. He is one of the leading financial market observers and since 1990 he has
been producing fixed income commentaries distributed to institutional portfolio
managers and traders.
His commentary today is especially important. Jim writes:
“In the seminal book A History Of Interest Rates, Sidney Homer and Richard Sylla traced interest rates back to the fertile crescent in Mesopotamia 5,000 years ago. Nowhere in the book will you find negative interest rates (last update was 2005).
The
chart above shows that today Germany became the third country to see negative
interest rates at the 10-year tenor. They join Switzerland, who’s rates went
negative in early 2015, and Japan, who’s rates went negative earlier this year.
So
human history has no experience with negative interest rates. No one knows how
financial markets and economies are supposed to react to them. Are lower rates,
even if negative, stimulative? Or when rates go negative do we enter an
alternative universe where relationships change? This is our bet. All we have
are guesses, most of which have not panned out. See the yen strengthening since
Japan went negative on January 29. This was not the outcome that was expected.
We
better start figuring out how negative rates impact traditional relationships
in markets fast. As the next chart shows, we are now up to $13 trillion of
negative sovereign yields.”
You can contact Bianco Research at: http://www.arborresearch.com/bianco/
