No more negative rates: for the first time in 10 years on Wednesday, medium and long-term debt was not traded in the world in financial markets with negative returns.
All two-year loan rates in the bond market, where investors exchange debt securities already issued by governments or companies, closed this Wednesday above zero, according to an index prepared by the financial agency Bloomberg. It had not returned to zero since 2010, although it had approached that threshold in 2013.
A negative rate means that investors who have redeemed a debt security will not be reimbursed the full amount paid if they hold it to maturity. By the end of 2020, the amount of debt at negative rates had peaked at $18.4 trillion, as yields plummeted under the impact of ultra-loose policies by central banks around the world.
Reversal of monetary policies
Some, including the European Central Bank, had made the key rate negative for commercial banks that store their money at home, to encourage them to lend to households and businesses, thus relaunching growth. Regulatory restrictions or slightly less negative bond rates could push investors to accept losing money by investing in financial products.
But the economic environment changed in 2022 with the drastic reversal of monetary policies by central banks to combat inflation. Last to reverse, the Japanese central bank eased a bit in December, setting investors up for a sharper turnaround early in the year. This boosted yields in Japan.
The 2-year Japanese government bond turned positive again for the first time since 2016 at the end of the year. On Thursday, however, it fell to -0.047%. However, other bonds with maturities of less than two years remain negative, especially in Japan.
Source: BFM TV
