25 Jul 2016
Negative Interest Rates: Bitter Pill
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
There is currently over US$10 trillion in government issued bonds paying an interest rate below zero.
The Citi World Government Bond index (benchmark) has 42% of securities trading on a negative interest rate.
The danger is that a small rise in interest rates of just 1% would cause the price of a 30 year bond paying 3% to fall by 20% of its value.
Trouble is coming.
This negative interest rate policy will end badly but when is the question and how long can governments keep this up before mean reversion takes place?
Don’t know the answer but what we do know is that there will be tremendous buying opportunities for quality assets when everyone becomes fearful.
At Newealth we are always looking to support and promote our clients wherever possible and if you have any ideas or comments, please feel free to email me or to call me on +61 2 9267 2322.