Five of the worlds central banks – Japan, Sweden, Switzerland, Denmark and the European Central Bank — now pay negative interest rates on government bonds. This means that savers must pay money for the privilege of owning these bonds, a sure indicator of a fragile world economy. It has long been rumored that rates are likely to go below zero; the assumption was that households would rather stuff money in the mattress than pay to hold government debt. The indication is that this is actually taking place as home safe sales have skyrocketed in Japan and throughout Europe.
A Finch Ratings Report states that worldwide there is a staggering 10 trillion in negative yielding sovereign bonds. In fact J.P. Morgan’s global government bond index has slightly fewer than 27% of its issues returning below zero yields. Even corporate bonds are joining the free money party with over 310 million in bonds returning below zero yields currently on the market.
Another important point is the fact that all these government negative rate bonds are doing little or nothing to stimulate their respective countries’ economies. In fact besides little or no growth in counties with negative interest rates, there is plenty of evidence that their economies deteriorated at an accelerated pace in the last quarter. Recently billionaire fund manager Ray Dalio, said “the debt market is in a “dangerous situation.” Ray added “There’s only so much you can squeeze out of the debt cycle, and we’re there globally,”
The US prime rate is currently holding at .5% and the Fed Chair Janet Yellin has been bluffing about a possible rate hike since the first quarter of 2016. Most money managers polled believe it’s highly unlikely the US economy recovers enough for her to actually make higher rates a reality.