Negative interest rates: sneak peek into the European economy

Abstract

The world of interest rates have changed dramatically since the dawn of introduction of Negative interest rates. This reminds me of a famous saying by John Maynard Keynes : “Markets can remain irrational longer than you can remain solvent” Many Central Banks in the world have resorted to negative policy rates and what was considered to be a short term phenomenon has dragged on since 2014-15. Initially the short term interest rates were turned negative but with the passage of time, negative yield have seeped into long-term bonds of duration up to 10-20 years and for some countries like Switzerland, for up to 50 years. The situation has got intense so much so that recently France issued a new 10-year Government bond at a negative yield of -0.13%, this being the first by any country in the world. The Global stock of debt trading with negative yields have surged as if it is on steroids. From $ 3.2 Trillion at the start of 2015 to $ 17 trillion at the end of August, 2019.