Monday , September 21 2020
Home / Tag Archives: negative interest rates

Tag Archives: negative interest rates

Strategies for Monetary Policy

Strategies for Monetary Policy is a new book from the Hoover Press based on the conference by that name John Taylor and I ran last May. (John Taylor gets most of the credit.) This year's conference is sadly postponed due to Covid-19. We'll have lots to talk about May 2021.At that link, you can see the table of contents and read Chapter pdfs for free. You can buy the book for $14.95 or get a free ebook.The conference program and videos are still up.Much of the conference was about the...

Read More »

Kocherlakota on moral hazard

I found a kindred spirit. Narayana Kocherlakota, ex president of the Minneapolis Fed, shares my concerns over the current lending and bailout spree, in particular propping up the prices of corporate bonds.In its last financial stability report of 2019, the Fed highlighted how many nonfinancial corporations were making use of highly risky debt. The report pointed out that “a number of contacts expressed concern that a U.S. recession would expose highly leveraged sectors … concerns related to...

Read More »

Summers tweet stream on secular stagnation

Larry Summers has an interesting tweet stream (HT Marginal Revolution) on the state of monetary policy. Much I agree with and find insightful:Can central banking as we know it be the primary tool of macroeconomic stabilization in the industrial world over the next decade?...There is little room for interest rate cuts..QE and forward guidance have been tried on a substantial scale....It is hard to believe that changing adverbs here and there or altering the timing of press conferences or the...

Read More »

Macroeconomic Policy Reform the IPPR way

Monetary and fiscal policy makers in the UK seem to think they had a good recession. You can tell that because neither group seem particularly interested in learning any lessons. This is despite the fact that we had the deepest recession since the 1930s, and the slowest recovery for centuries. It is also despite the fact that the level of UK GDP is almost 20% below the level it would be if it had followed pre-recessions trends, and all previous recessions have had the economy catch up with...

Read More »

This is nuts. Get used to it

This will be a mostly charted recap of where exactly in the rabbit hole of negative yielding corp bonds we are following last week’s knee-shaking sale of some brand new negative yielders by non-state owned Henkel and Sanofi. It was a first. It was exciting. From Morgan Stanley, with our emphasis: We estimate that a total of €467bln of EUR IG bonds now have sub-zero yields. Of this, €313bln of bonds are iBoxx index-eligible, split 39% and 61% between financials and nonfinancials. Thus, ~25%...

Read More »

Yellen on negative rates: we do not speak its name

Janet Yellen opened the festivities at this year’s Jackson Hole economic symposium by musing on what central bankers had learned since the crisis and how they can deal with future recessions in a world where interest rates are far lower than in the past. Unsurprisingly, bond-buying and “forward guidance” featured prominently in Yellen’s narrative of successful new tools. (On the other hand, scholars have estimated the combined impact of these measures was an unemployment rate a mere 0.13...

Read More »

Negative rates, helicopter money and the Bank of England

Yesterday Mark Carney said he was against negative interest rates and helicopter money, but in reality he implemented a way of doing a version of both. Let me explain. When negative interest rates are discussed, we normally think about savers, and the fact that they could avoid being charged to deposit money in a bank by hoarding cash. But borrowers would have no problem with negative rates: borrow £1000, and just pay back £990. The bank they borrowed from would have, unless there were...

Read More »

It’s a negative yielding world, we just get to scramble in it

Here’s a rough piece of calculation based on the last few years of news: When x happens, yields fall. An example of this post-GFC rule-of-thumb was Brexit and its fallout. The potential lesson from said rule is that yield hunting isn’t fun anymore, say Credit Suisse’s William Porter and team, with our emphasis: Negative (or very low) 10-year Bund yields have not been a boon for European credit markets, based on our analysis of recent history. For as long as they continue, we would warn...

Read More »

This is nuts. When’s the crash?

For bonds, at least, that question seems to become ever more rhetorical as things get further from what used to be considered normal. But we’ll push on. ICYMI, from Deutsche’s Jim Reid and with our emphasis: On this theme, both Bloomberg and Reuters reported yesterday that Deutsche Bahn has become the first non-financial company to issue debt with a negative yield. The railway operator sold €350m of five-year bonds with a zero coupon which were priced to yield -0.006% according to...

Read More »

What markets think Brexit means for the Bank of England

If you’d asked any observer four or five years ago which country would be the first to leave the European Union, few would have guessed it would be the UK. Of all the countries in the EU, the UK is probably the one with the least to gain from meaningful changes in its economic relationships with its neighbours. Yet here we are. London’s stock markets, priced in sterling, probably understate the expected impact on the UK economy given the sectoral and geographic earnings mix of the listed...

Read More »