Negative rates return
NEW YORK – March 26, 2019
The world economy and world finances cannot get back to normal.
Just last year it seemed that that Fed would bring financial markets back to reality, remind them of their risks, and stop the chaos that was provoked by endless quantitative easing programs.
But all attempts were in vain: Again we have more negative returns in the debt market, totaling $10 trillion.
The yield curve of American treasures is also rapidly declining, and for the first time since 2007, has inverted, where short-term rates are higher than long-term -- the most accurate signal of the coming recession.
Paradoxically, the volume of debts with a negative rate has almost doubled in just six months, confirming the hypothesis that the global asset bubble has returned.
The current situation in the markets causes investors look for profitability. To do this, they not only shift the focus of purchases further along the yield curve, but also further down the reliability scale. Simply put, they are ready to buy assets of any quality, so long as it brings income.
And although the behavior of investors is largely due to a change in the Fed's rhetoric, which, in fact, forces them to make risky decisions, some market participants still prefer to act carefully. Indeed, if we are talking about the corporate sector, then among the weakest companies there may be defaults, and primarily on long securities, where the yield is higher.
Meanwhile, negative returns mean that investors will lose money simply by holding bonds to maturity. Perhaps they simply hope that the madness of the Fed will push prices even higher, which will allow them to sell to other investors with even lower returns.
In principle, this would be a quite feasible task in the event of a new global depression and recession, which will lead to negative growth and deflation. But, as noted by Bloomberg, risky assets during this period can lose much in value.
Some well-known experts note that there has never been such a long-term easing policy in the world.
It is completely unclear when this “bubble” will end, but it is clear that Ben Bernanke, who said in 2014 that rate normalization will not happen in his life, was - perhaps the only time in his entire career - honest with others.