Bank pays u to borrow/ Govts borrow for free

In Financial competency, Financial planning on 21/08/2019 at 5:35 am

World turned upside down.

A Danish bank last week week launched the world’s first negative-rate mortgage, allowing housebuyers to take a home loan and pay back less than they borrowed.

Sounds good.

But do realise that should negative interest rates leads prove to be a precursor of deflation, property values fall in a deflation. But then that doesn’t matter to HDB flat owners.

Germany has a new test of investors’ voracious appetite for bonds with very low or even negative yields: a 30-year bond that offers no interest payments at all.


It has already issued similar 10-yr bonds

Bonds worth U$15tn, about a quarter of the global market, are offering negative returns, the FT reported last week: U$100 of bonds, including interest payments, will return less than that amount throughout their lives. That’s useful context in understanding why central bankers keep being asked about negative rates.

The central banks of the Eurozone, Switzerland, Japan, Sweden and Denmark all have rates set below zero to try and tackle very low inflation. It isn’t working, but that’s another story.

The Bank of England’s governor was asked by website Central Banking whether the UK will try the policy.

“At this stage we do not see negative rates as an option here. I am not criticising others that have used them, but we don’t see it as an option,” he replied.

Whatever one says about the Brits, despite a no deal Brexit being the likely result, the economy doesn’t yet need to resort to -ve interest rates. Sounds like Brexiters are right to accuse the Remoaners (those who want to stay) of doom-mongering i.e. Project Fear.

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