February 27, 2015

WHICH IS HOW YOU KNOW INTEREST RATES REMAIN ARTIFICIALLY HIGH:

10 Things to Know About Negative Bond Yields (Mohamed A. El-Erian, 2/27/15, Bloomberg View)

 The seemingly illogical willingness of investors to pay issuers to borrow their money is neither irrational nor driven by just noncommercial considerations (such as regulatory requirements or forced risk aversion). As the European Central Bank prepares to start its own large-scale purchasing program next week, some investors believe they could make capital gains on such negative yielding investments.

There are many immediate reasons to justify this investor optimism. The impact of the ECB's quantitative easing program (whose scheduled purchase of government bonds is likely to run into a relative scarcity of supply) is amplified by still-sluggish growth, "low-flation" and the threat of deflation. Geopolitical developments also play a role, along with messy national and regional politics in Europe.

 These immediate drivers benefit from a supportive secular and structural context that ranges from the dampening effects of demographics to the impact of technological innovations and growing inequality.



Posted by at February 27, 2015 4:19 PM
  

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