negative interest rates (NIRP)

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas
The head of the Reserve Bank has told Parliament that all options are on the table to stimulate Australia's economy, potentially even cutting interest rates to zero or negative levels and implementing unconventional policies such as quantitative easing.

This week, four countries — New Zealand, India, Thailand and the Philippines — cut their official rates, with more nations expected to follow over the next few weeks.

That follows the first US Federal Reserve rate cut in more than a decade at the end of July.
...
https://www.abc.net.au/news/2019-08-09/reserve-bank-cuts-economic-forecasts-again/11399576

 

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas
In Denmark’s $495 billion mortgage-backed covered bond market, another milestone was reached on Wednesday as Nordea Bank Abp said it will start offering 20-year fixed-rate loans that charge no interest.

The development follows an announcement earlier in the week by Jyske Bank A/S, which said it will start issuing 10-year mortgages at a coupon of minus 0.5%. Danes can also now get 30-year mortgages at 0.5%, and Nordea recently adjusted its prospectus to allow for home loans up to 30 years at negative interest rates.

“It’s never been cheaper to borrow,” Lise Nytoft Bergmann, chief analyst at Nordea’s home finance unit in Denmark, said in an email. “We expect this to contribute to driving home prices higher.”

Though good news for homeowners, Bergmann said the development is “almost eerie.”

“It’s an uncomfortable thought that there are investors who are willing to lend money for 30 years and get just 0.5% in return,” she said. “It shows how scared investors are of the current situation in the financial markets, and that they expect it to take a very long time before things improve.”
https://www.msn.com/en-us/money/new...-first-time-in-danish-rate-history/ar-AAFtb2Z
 

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas
...
The cash cow bank lending model is dead, buried by the European Central Bank (ECB).

The coup de grace came at the recent meeting. As ECB President Mario Draghi squeezed the negative interest rate for banks even deeper.

The ECB will restart its bond purchase program in November. This time, without a time limit. Thus, the monetary authorities have permanently chained the long-term interest rate at a low level and cut the profit opportunities of the financial sector to a level that isn't sustainable.
...
"The negative interest rate policy of the ECB is ruining the financial system and is a socio-political poison," says Frank Kohler, CEO of Sparda-Bank Berlin. The financial system is absurd if we have to explain to the children that money has a negative value - and thus debt is good, because you may not have to repay everything.
...
https://moneymaven.io/mishtalk/econ...cial-political-poison-KNu4O39sr0CgSTvznJQieg/
 

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas
Negative interest rates have quite literally broken one of the pillars of modern finance.

As economists and central bankers weigh the pros and cons of sub-zero rates and their impact on the world, traders have been contending with a rather more mundane, but fundamental issue: How to price risk on trillions of dollars of financial instruments like interest-rate swaps when their complex mathematical models simply don’t work with negative numbers.
...
More: https://www.bloomberg.com/news/arti...-broke-black-scholes-pillar-of-modern-finance
 

rblong2us

Yellow Jacket
Messages
2,099
Reaction score
11
Points
153
Location
off world
I ponder the concept of borrowing a large amount of fiat at close to zero or zero and buying gold with the money, with the gold acting as security on the loan.

If it goes wrong, well the business goes bust, sorry.
If it goes well, the gov get their capital gain and i get the rest (-:

Got to be a better plan than bonds or deposits at a negative rate .........
 

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas

rblong2us

Yellow Jacket
Messages
2,099
Reaction score
11
Points
153
Location
off world
I read this and didnt feel very convinced by his arguments

Bank profit works on the difference between borrowing costs and lending charges and will generally be the same margin regardless of the base rate.

Have people stopped depositing their savings ? If so what are they doing with this spare money ?
If banks need funds to create loans ( and I thought they could create a loan through shadow banking at the stroke of a key) then surely the CB can offer them funds ?

The suggestion that people instinctively borrow less when we get to zirp or nirp also doesn't make sense to me.
I reckon they arent borrowing because well 'if it seems too good to be true .....' and at some point there will be an uptake of borrowing as a 10 year loan fixed at bugger all kinda makes sense if you need somewhere to live but are we holding back from business loans because we are 'waiting for the other shoe to drop' ?
 

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas
Well, Italian banking sector appears to agree with it...

Unicredit, Italy’s biggest lender, is working on measures to transfer the European Central Bank’s negative rates onto clients holding more than 100,000 euros ($110,000) in their accounts, Chief Executive Jean-Pierre Mustier said on Wednesday.

The ECB last month cut rates deeper into negative territory as part of monetary stimulus aimed at reviving an ailing euro zone economy, nearly a decade after the bloc’s debt crisis.

In particular, the ECB’s deposit rate was reduced by a further 10 basis points to -0.50%.

Mustier, who chairs the European Banking Federation, said in an interview with French TV channel BFM Business that “negative rates have a significant impact on European banks’ revenues”.

To counter this, banks “can transfer negative rates case by case onto big companies or some big clients”, Mustier said, describing such clients as those with deposits of more than 100,000 euros. He did not elaborate.
...
https://www.reuters.com/article/unicredit-rates-idUSL5N26U440
 

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas
Negative interest rates are "essential" for the Swiss economy and will not be reversed without a significant change in global economic conditions, Thomas Jordan, head of the Swiss National Bank, warned today.

Mr. Jordan's remarks come amid mounting concern in Switzerland that the country's nearly five-year long rate-setting experiment -- aimed at curbing the appreciation of the franc and protecting exports -- is beginning to create severe structural problems.

The SNB's benchmark rate, set at minus 0.75 percent, is the lowest of any central bank in the G10 economies. Yields on 10-year Swiss government bonds have been negative for almost a year.

Some economists have warned that the policy distorts capital allocation in the economy, artificially skewing investors' and consumers' perceptions of risk in subtle but potentially substantial ways. Banks' margins have shrunk dramatically, while cheap credit has begun to inflate asset prices in some parts of the economy. ...
http://gata.org/node/19554

:noevil:
 

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas
UBS Group AG is considering whether to impose fees on a wider group of savers as it seeks to share the burden of negative interest rates.

The Swiss bank is approaching clients holding less than the 2 million Swiss francs ($2.1 million) about paying for their deposits, people with knowledge of the matter said, asking not to be identified discussing private talks. That’s the current threshold at which charges currently kick in at the lender.

“We are following developments closely and generally recommend that clients consider alternatives to cash,” UBS said in an emailed statement. “UBS still does not intend to charge negative interest rates to small savers or small businesses.”

UBS has so far set a relatively high bar for passing on the pain. Zurich-based rival Credit Suisse Group AG also charges clients with cash deposits of more than 2 million francs. Some retail lenders in Germany charge for deposits of more than 100,000 euros ($112,000) and Switzerland’s PostFinance AG sets the bar at more than 250,000 francs.

Negative rates were a main reason that UBS dropped its net new money target in January. UBS started a program this year to encourage clients to move out of cash into investments that are better protected from negative rates.

If depositors don’t want to make those changes, UBS will consider charges “and it’s possible that they move their cash elsewhere,” Chief Financial Officer Kirt Gardner said on a call with analysts in January. “We are working through the details of that program and will announce more within the first quarter.”

Moving clients into investments may have become a harder sell after stocks dropped the most since the financial crisis last week, hurting investment portfolios.
https://www.bloomberg.com/news/arti...ng-negative-rates-to-a-wider-group-of-clients

Gee, where should folks put their money if the banks don't want it? Gee, I wonder... :gold:
 

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas
...
Investors are now betting the U.K. will join the negative-rates club by the end of December.

Spurred by Bank of England Chief Economist Andy Haldane’s comments that the institution is looking at unconventional monetary policies -- including negative rates -- more urgently, overnight interest-rate swaps for December’s meeting dropped below 0% for the first time.
...
Market pressure on the U.S. and the U.K. to cut rates below zero is growing with the coronavirus continuing to weigh on economic output. Still, officials are reluctant to make the move, citing risks that a negative interest-rate policy stifles bank profitability, and harms the economy more than it helps.

Morgan Stanley has also expressed such concerns, arguing in an emailed note that both Japan and the euro area -- which have rates in negative territory -- have seen greater underperformance of stocks, economic growth, loan growth and bank valuations than the U.S.
...
https://www.bloomberg.com/news/arti...ative-interest-rates-by-year-end?srnd=premium
 

pmbug

Your Host
Administrator
Messages
7,451
Reaction score
25
Points
203
Location
Texas
U.S. banks have long looked with pity at overseas lenders coping with negative interest rates. Now, they’re grappling with the fear they may join the crowd.

Negative rates -- especially if they persist for many years -- reduce the spread banks make between lending and borrowing because they cannot pass the negative rate onto most depositors. Coupled with surging defaults due to an economic downturn, they can sap profits out of the banking system even if they create an initial jump in lending. That toxic combination has crippled Europe’s banks in the last six years, a dreaded position their U.S. peers would like to avoid.
...
More: https://www.bloomberg.com/news/arti...ting-wall-street-bankers-on-edge?srnd=premium
 
Top