In Denmark, we have had negative rates for 4 1/2 years already. Back in Dec. the FED was signalling that they felt they would be raising rates 4 times in 2016; each increase 25 basis points.
More recently the market has been talking about on 1 additional rate increase in the US this year.
Morgan Stanley and JPMorgan are both talking of further reductions by the ECB and the BOJ this year.
the 2 firms are contemplating the ECB potentially cutting to -4.5% and the BOJ to -3.45%.
this was the thinking less than a week ago as seen in the Bloomberg post
Message 30550038
Even some fellow policymakers cast doubt on the initiative. Bank of England Governor Mark Carney warned that a deeper dive risked stealing demand from abroad—code for a “currency war.” The central bankers behind the cuts are aware of the criticism. When Draghi, who pared his deposit rate in December, did so again in March, he suggested he would go no lower and said a new round of loans to banks would include a sweetener for those who pass the money on to consumers or businesses. Kuroda also held off cutting further in March.
That’s not to say Draghi and Kuroda will remain hands-off. Economists at Morgan Stanley predict further reductions from both the ECB and BOJ this year, while those at JPMorgan Chase say that if the authorities subject only a portion of reserves for negative rates—as Japan already does—then the ECB could cut to -4.5 percent and the BOJ -3.45 percent.
The ECB argues that negative rates have helped banks lower their funding costs, generated capital gains on bond holdings, and reduced bad loans. Draghi says he’s striking the right balance. “The aggregate profitability of the banking system has not been hindered by the experience we had of negative rates,” he said in March. “Does it mean that we can go as negative as we want without having any consequence on the banking system? The answer is no.”
Gundlach is a bond fund manager, not stocks. I have noticed that the his Doubleline fund 2 months ago was cited to be have assets of $52 billion, now that figure is up to $90 billion and this in a year when money is exiting hedge funds and managed funds all over the place.
when Bond fund managers look at rates and the direction, they have many variables that go into the their positioning, the shape of the yield curves in several countries, the width of the credit spectrum, as well as how long the duration of their portfolio should be, how much exposure to zero coupon bonds and how much to just the stripped out cash flow payment vehicles.
Bill Gross, now at Janus saw his fund easily beat his old Pimco fund this past year. Last April when he correctly said that German 10 year bunds were the short of a lifetime when yields were down at 5 basis points. .005% , well he was correct on that statement, however he deployed a more intricate strategy that was directionally correct but made him nowhere near the type of return he would have made had he just outright shorted the German 10 year bunds. That was due to him not expecting the rocketship 5 week rally that took down bunds in price a percentage amount that more closely resembled the way .com stocks moved in 1999.
The most recent comments from Yellen and Fisher indicated that they have not ruled out the US using negative rates ( I would ascribe that to the idea, never say never)
We will have to see how quickly the CB in Japan and the ECB do change course. Sweden is the country that is set to be the first to reduce the level of Negative CB rates at the Riksbank.
John |
