What Negative Interest Rates Are Signaling
We live in a very unusual time. With the European debt crisis on the market’s mind daily, and as China’s economy slows and the U.S. economy falters, the world has become more complicated.
Economic slowdowns and/or recessions are normal, but what is unusual this time around is the fact that interest rates in many countries are going negative.
Investors are paying certain governments to hold onto their money. Government debt is not an investment vehicle anymore; it has become a safety deposit box for investor money. Negative interest rates are signaling the fear investors have.
Just in the last month, Germany’s two-year government debt bond yielded a negative interest rate of -0.002%. Investors believe that should the eurozone fall apart, Germany’s economy will be one of the few to withstand the financial crisis storm. As such, investors paid for Germany’s government debt, because they believe they have assurances of getting their money back.