Interest Rates Bid Goodbye to the Insanity
Why So Negative?
Half of the world’s negative-yielding debt is denominated in euros. And the well is draining rapidly: Even German government bonds longer than four years are turning positive. A new era dawns.
If negative rates were ever going to improve the persistently sluggish European or Japanese economies, it really ought to have been evident by now.
Banks have massive incentive to simply park money either at the ECB or BOJ because they get rewarded for it despite taking no risk.
There is ample support for Italian government debt with all of this year's net supply covered by planned ECB purchases. Greece has funded several years ahead.
Marcus Ashworth Bloomberg 7 February 2022
Nice charts
The coming storm as central banks fight inflation will be far worse than anyone expects
A blissfully unaware generation faces prolonged pain from higher interest rates
What happens to wage inflation will be key.
There are two related but different phenomena at work.
One is the cost of living crisis, with people’s real living standards squeezed as price inflation exceeds pay inflation.
The second is inflation pure and simple, that is to say the process under which all flexible prices, including the price of labour, rise.
Tighter monetary policy diminishes aggregate demand and thereby changes the balance between demand and supply, putting downward pressure on prices.
You can see how seriously out of kilter things have become in the mortgage market. The average mortgage rate for new borrowers is only 1.6pc.
Roger Bootle 6 February 2022
Kommentarer