Going sub zero with interest rates: Weird is now normal for monetary policy

Would you pay someone to borrow money from you? Rest easy, I’m not hinting at the prospect of a mafia don on the other side of the transaction. Rather, would you pay your central bank 100 bucks today in return for 99 bucks a year from now?

Those of you who think I’m laying out a scam, ease up and don’t get your panties in a bunch. Sample these news stories instead.

“German consumer goods group Henkel sold € 500m of two-year debt with a yield to maturity of minus 0.05 per cent while French pharmaceutical business Sanofi sold € 1bn of three and a half year debt, also at a yield of minus 0.05 per cent”

“Roughly €706 billion of Eurozone investment-grade corporate bonds traded at negative yields as of September 5th or over 30% of the entire market, according to trading platform Tradeweb, up from roughly 5% of the market in early January”

“Around $13 trillion worth of bonds traded with a negative yield in late August, according to J.P. Morgan Asset Management. At the beginning of 2014, the figure was close to zero” Continue reading

Euro Anguish – Pushing on a string is no way out

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Last Thursday – 3rd of December, the ECB boss Mario Draghi found himself in a rather awkward situation. Markets expected him to come to the party with a fully loaded Bazooka and Draghi believed he had one. Alas, as the day wound to a close, the street thought he was armed with a slingshot and a couple of pebbles to boot. Now, remember, we’re not talking about just another central banker here. Mario Draghi or ‘Super Mario’ easily takes the cake for his mastery of the dark act of central bank communications. Back in 2012, bond markets were in tailspin, fearing an imminent collapse of Greece and the Eurozone peripheral economies. Draghi then came up with the now famous  “whatever it takes to save the Euro” line to calm markets and reverse  panic. I’ve been an unabashed fan of the guy ever since and rightly so for the ECB really didn’t have to wield many of its weapons in the aftermath. Indeed, if one were to rank policy announcements by “bang for the buck”, those few words spoken in a London conference on July 26th  2012, would rank right at the top of the list. But this time, it was the rabbit that he didn’t pull out of his pocket that got panicked traders to stampede in a rush to exit their crowded short Euro and long eurozone fixed income trades.
Continue reading