Peak Negative-Interest-Rate Absurdity? Hilarity Ensues
Among the goodies: “reverse Yankee” landmines.
When a central bank like the ECB imposes negative interest rates along with QE on its bailiwick, funny things start to happen.
Investors become so eager to get any kind of visible yield that they will do the craziest things. They’re now chasing €3 billion of 50-year bonds that the French government placed today. The yield? 1.916%.
These 50-year bonds are bought by institutional investors who, in normal times, would have been institutionalized.
The impact of negative interest rates isn’t limited to the bailiwick where they’re imposed. These yield-desperate investors will go anywhere to get some yield. They’re now scrambling to get their hands on Argentina’s new dollar-denominated bonds: $15 billion spread over maturities of five, 10, and 30 years, expected to come to market next week.
This is a country that has spent 75 of the last 190 years in default, including 2013-15, 2000-04, and 1980-92. The next default might be ten years down the road. Since Argentina cannot default on those bonds via devaluation of the peso, it will have to default on them in the classic Argentine way.
But investors need the yield now, and to heck with the risk of default. They’re hoping they can dump these things – or at least move on to the next job – before the government pulls the plug.
Yet there are a few things that the noble combination of negative interest rates and QE has not been able to accomplish.
Consumers, whether in the Eurozone, Japan, or other NIRP countries, are inexplicably leery of becoming even bigger debt slaves by borrowing to consume. And those who try it by running up their credit cards find that negative interest rates, or even low rates, haven’t made it that far.
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