Categories: General Market Commentary
Topics: General Market Commentary

A Negative Interest Rate World

Sprott's Thoughts

A Negative Interest Rate World

Tim Taschler

The FT reports that the value of negative-yielding bonds - both government and corporate - swelled to $13.4 trillion this week as negative interest rates and central bank bond buying ripple through the debt market.

The talk of negative rates has spread to the US, with Fed Chairwoman Janet Yellen failing to “take them off the table” at a recent congressional hearing.  With a background like this, it would seem highly unlikely that rates are about to experience a move to the upside.

What exactly are negative interest rates?  Well, negative rates means that the lender pays the borrower for the privilege of lending money.  Yes, you read that right.  You lend money to an entity and will not earn any interest. 

In fact, you will get back less money than you lent when the bond matures, which is where the ‘negative’ part comes into play.

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