The worlds gone mad
Duncan Richardson, News Editor
10 Apr 2015, 1:18 p.m.
Has the financial world gone mad?
Since the crash of 2008 the financial world has become accustomed to historical anomalies such as quantitative easing, operation twist, currency wars and zero interest rates.
But just when you think you have heard it all, Switzerland issues a 10 year government bond with a negative yield i.e. investors will receive back less in 10 years than they originally invested. To date Switzerland is the first country to achieve this, however, a number of other countries have successfully issued 5 year bonds with a negative yields.
So how did we get to this point? A combination of central banks buying government debt and falling inflation.
J.P Morgan estimates there is currently 220 million euros of bank reserves subject to a negative interest rate and anticipates the number to grow because of the ECB’s decision to print over 1 trillion euros. The majority of this money will be used to buy government debt which will potentially drive yields even lower.
With central banks manipulating yields and interest rates it may be sometime before we return to a true capitalist economy.