negative rates

The Daily Update - Japan & Growth

The efficacy of negative interest rates has been a well debated topic with Mark Carney, the Governor of the Bank of England, making clear his view clear with an emphatic dismissal of the use of this policy tool: "I’m not a fan of negative interest rates. We've seen the consequences of them in other financial systems. We have other options to provide stimulus if more stimulus is needed so we don't need to go to that resort." For him “the effective lower bound is a positive number, close to zero.”

The Daily Update - Japan

Unconventional monetary policy and negative rates continue to bring unintended consequences.  Globally, more and more sovereign bonds (over USD 10 trillion) now trade on negative yields with the 10 year German bund also joining the club.  As negative rates and QE are being pursued policy outcomes are becoming less predictable than might have originally been hoped for.  For example, currency moves are not necessarily as central banks predicted: take Japan, where the shift to negative rates earlier in the year was expected to help the currency weaken and boost growth and inflation.  In fact the Yen has strengthened, exacerbated by the latest meeting, when the BoJ left policy unchanged and the Yen strengthened breaching the JPY105 level against the US dollar.  At the time of writing the Yen is trading at ~104.28 to the US dollar; at the moment the market is not heeding attempts by government officials to ‘talk down’ the Yen.  The Finance Minister, Taro Aso, called for global coordination to address these disorderly moves in the foreign exchange market.

The Daily Update - Negative Rates and the Fed

We have long spoken of our thoughts on negative interest rate policy (NIRP), quite frankly we do not believe it is an effective strategy to avoid the deflationary spiral, or spur growth. Unfortunately for the likes of the BoJ and eurozone, there was very little ammunition left on the table to deploy. In Denmark, where negative rates were adopted almost four years ago, studies show that NIRP is counter-productive as the private sector for example is actually saving more than when rates were positive!

Wealthy Nations Daily Update - Negative Rates

Yet again the IMF has downgraded their global growth estimates to 3.2 percent for 2016 and 3.5 percent for 2017.  Their policy prescription is more proactive use of fiscal policy and structural reform in conjunction with already supportive monetary policy.  Indeed a criticism of current policy is its over-reliance on central banks and that the prolonged use of QE and negative rates bring unintended consequences. Olivier Blanchard, now at the Peterson Institute in Washington, but formerly the Chief Economist for the IMF, said he is wary on the use of negative rates saying “I don’t like it, I think it interferes with the business of banks in ways that are very complex” instead “I much prefer what we now call regular QE.”

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.