The Race to Zero

Today we are going to talk about negative interest rates. In Japan, Germany, and France, to name the three big ones, interest rates are negative, which means their central bank will charge you for the privilege to hold and use your money. Currently, there is approximately $17 Trillion (with a T) invested in negative interest fixed income. So, you give me $1000 today and I agree to give you your money back in ten years, less about $5 per year as a cost to the investor. Amazingly, and for now, investing in ultra-low or even negative bonds has worked. If you buy a bond with negative rates, you just need it to go a bit further in the red…If this is a hard concept to get your arms around, you are not alone, because it has never acted to this extent in economic history. The talk is all about inverted yield curves and trade wars, but the huge, worldwide bond market is ground zero, and the race is on. Or should we say ground “less than” zero.