In the future will we only have negative interest-rates and yields?

Today I wish to examine the concept of negativity but not in the way that it is normally meant! Specifically I wish to look at it in the land of economics with specific reference to negative interest-rates which are an increasing feature of the landscape. This has long been a theme of this blog which has been on this particular case for some years now. I recall telling a UK think-tank (that phrase is now in my financial lexicon) back in the autumn of 2010 that negative interest-rates were a genuine danger and returned to the subject regularly including on the 11th of October 2012.

This has given us a situation where some have to pay ever higher interest rates on borrowing but others may find themselves receiving negative interest rates on their savings. So they may save 100 and get back 99 in a year’s time.

What had brought the subject up back then was this situation.

If we look at official interest-rates then we have seen examples of this develop in 2012. For example in Switzerland the two-year government bond yield first went negative back in early April and is -0.16% today. German yields have also gone negative at times although right now the only one actually negative is her three month one. Back in July the Danish central bank found itself issuing some of its certificates of deposits or CDs at an interest rate of -0.2%.

That is a familiar list of candidates as we shall see in a moment! But the issue is a growing one as we mull how much contagion there will be. Also back then I quoted from the Financial Times on the 23rd of August of that year.

Bank executives, as well as central bankers, are clear that lenders have to increase their loan prices to compensate for the loss, as they are unable to impose negative rates on customers.

So rather than the economic stimulus claimed in fact negative interest-rates may well turn out to be a contractionary influence. Those with debt may wonder at another Alice In Wonderland feature of the credit crunch era where less (lower official interest-rates) is more (higher borrowing rates for the rest of us). The subject went on.

Ah yes, so lower interest-rates officially mean higher ones for borrowers do they? Let me tuck that into my financial lexicon. Indeed Thomas Kressin of PIMCO (the world’s largest bond fund) described such thoughts like this.

It is almost quantum physics

Why is this on your mind today Shaun?

This is a subject which was exacerbated by the behaviour of the Swiss National Bank only last Thursday as in addition to abandoning the Swiss Franc cap at 1.20 to the Euro it announced this.

At the same time, it is lowering the interest rate on sight deposit account balances that exceed a given exemption threshold by 0.5 percentage points, to −0.75%.

In terms of official interest-rates this was a move which broke new ground for a major economy and is the current leader of the pack. This was then followed by extraordinary developments in the Swiss Bond market where negative yields spread their way as fast as a bacterial infection along the maturity spectrum. It still seems extraordinary for a ten-year bond yield to be negative but according to Bloomberg the Swiss ten-year currently yields -0.08%. Just to be absolutely clear rather than them paying you interest the investor pays them. If we think of this on a stand-alone basis this rather destroys the point of a bond does it not?


I did say that there would be a familiar list of names! Pressure was placed on Denmark and the peg that it has to the Euro by the Swiss announcement. This was only exacerbated by the official denials which of course reminded us one more time of this from Jim Hacker in Yes Minister

Never believe anything until it is officially denied.

We did not have to wait long for the denials to turn to action as yesterday the Danish Central Bank announced this.

Effective from 20 January 2015, Danmarks Nationalbank’s lending rate and interest rate on certificates of deposit are reduced by 0.15 percentage point. The discount rate and the current account rate are unchanged.

The Danish central bank has done something of a hokey-cokey dance with negative interest-rates but they are drawing it into their web with ever more force.

Certificate of deposit rate: -0.20 per cent

I guess that they are awaiting Thursday and the policy announcement by the ECB with extreme nervousness. Although of course the official view is that there is nothing to worry about. From Bloomberg.

“Circumstances significantly different from Denmark’s” were behind the Swiss National Bank’s decision, Danish Economy Minister Morten Oestergaard said in a phone interview. “Any comparison between Denmark and Switzerland is impossible.”

Actually the road to Thursday lunchtime may yet be a very long one for the Danish central bank as we wonder at what point the ECB will let it know what it plans to do next. I wish them good luck as on many of the roads forwards they will certainly need it.


Earlier this morning I spotted that negative yields were biting ever tighter in the bond or bund market of Germany. The two year yield dropped to -0.16% which is the lowest I have seen it. Added to this was the symbolism of the coupon on today’s five-year Bobl (bond) issue. From Twitter.

Actually they too have a negative yield (-0.04%) in the market but national debt issuers do try to assess current markets with the coupon settings. I do not think that anyone has been brave enough yet to set a negative one but that may yet come to pass!
Of course Germany like the rest of the Euro area has a negative official interest-rate. The deposit rate at the ECB is currently -0.2% and I am surprised that there is not more discussion around it being cut on Thursday. Please do not misunderstand me I do not think that it would help but it would be a move that the ECB could announce.
Oh and I would critique this from the ECB but simply highlighting some of it seems to do the job nicely.
There will be no direct impact on your savings. Only banks that deposit money in certain accounts at the ECB have to pay. Commercial banks may of course choose to lower interest rates for savers.


If we jump back into the TARDIS of Dr.Who then I would like to pose again a question I first asked on the 2nd of September 2011.

 As policy makers in the UK and US talk of more easing  their minds may begin to focus on negative interest rates. Will they try to enforce them?

Circumstances have changed in that both the UK and US had good 2014’s in terms of official economic growth and the official story is one of proposed interest-rate rises. But of course the ECB actually raised interest-rates twice in 2011 and look where it finds itself now.

One factor that has changed is that we have seen some banks offer negative interest-rates for savings which contradicts some of the thoughts from 2,3 and 4 years ago. But that is in itself a contractionary influence. Also if we factor in the negative rates of annual inflation being seen in ever more places we are left wondering if negative interest-rates should be included in my definition of deflation and how it can be measured.

As I have being discussing interest-rates and there is much to say I have stuck to nominal ones but there is another post waiting on the subject of real interest-rates right now where we also add in inflation. In terms of existing inflation it is plainly negative right now in much of the western word but of course real interest-rates depend on expectations of inflation just as the future is as uncertain as it has ever been.

Also the flow of interest-rates is combined in a mix with expected or hoped for gains -sometimes just the avoidance of expected losses – from a currency for foreign investors as we add another factor to the mixture. Stay tuned though because I expect this saga to run and run.


During the time I have been writing this blog and pursuing the Notayesmanseconomics project my biggest supporter has been my father Kenneth Richards. Sadly he died earlier this morning as the complications of the  lung cancer he was suffering from increasingly inflicted themselves on him. If he was still here now he would insist on me carrying on which I intend to do except for the day of his funeral. He would not be surprised either that some lyrics come to my mind. From John Winston Lennon and the Beatles.

There are places I remember
All my life though some have changed
Some forever not for better
Some have gone and some remain
All these places have their moments
With lovers and friends I still can recall
Some are dead and some are living
In my life I’ve loved them all


58 thoughts on “In the future will we only have negative interest-rates and yields?

      • Me too Shaun. I’ve had a crap day and this has snapped it into perspective. In fact I’ve had a trivial day.

        Obviously I don’t know your dad but as a father of two young boys my aim is to produce two hard working, charismatic and smart young men. So far all I know is this is harder than it looks. Your dad managed it so well done to him.

  1. Hi Shaun, I regularly read but do not post to your site – a lot of the input is over my head. Please accept my commiserations on the news of your father.

  2. Shaun, so sorry to hear about your father. He will have been very proud of what you have achieved with your economics blog which is so widely read and respected. Sincerest condolences to you and your family.

  3. Hi Shaun, I am so very sorry to hear of your dad, please accept sincere condolences. I think it’s very brave of you to continue writing today, and whether or not you find it cathartic is not for me to say. However, that you feel it’s what your father would have wanted must be a testament to his strength of character, and also a reflection on how he brought you up.

    Reading your article, I was going to make some half-baked quips about Hamlet and Denmark but somehow using such a literary tragedy doesn’t seem appropriate today, so maybe I’ll save them for another time.

    Chin up and best wishes,


  4. I’d also like to pay my condolences on the loss of your father.

    On today’s subject, my wife and I receive 3% interest on £60k split equally between 3 current accounts at Santander (hers, mine, joint) and there are many other similar accounts at different banks.
    Furthermore, credit cards can be easily obtained with 2 years or more interest free periods.
    So, with a decent credit rating, it is possible to borrow from the banks at the equivalent of negative rates.

    • Hi Shaun, I echo the comments of condolence expressed by your other contributors and thank you for today’s post.

      Therrawbuzzin you make a good point; with the right credit rating borrowing has never been cheaper. However, alongside this you have the eye-watering rates on offer to those who have a poor credit rating. You simply can’t understate the importance of getting and keeping an unblemished rating in these punishingly unequal times as I repeatedly tell the younger members of my family.

      • Hi Zummerzetman and thank you.

        It was on yesterday’s blog that I analysed one type of inequality. However you are right to point out that both the availability of credit and the price (interest-rate) of it is increasingly unequal too.

        • Savers be careful, KTB were offering the highest rates before they bankrupted. This is the point when you find out just how good your “state guarantee” really is

  5. Hello Shaun,

    Best wishes for you and your family at this difficult time

    With regards to the impact of negative rates on savings or current accounts the difficulty here would be the implosion of the banking system as we move back to the cash economy . Yes I know it would be hard but if the idea gains traction then you might as well try and stop a glacier !

    The current negative rates appear to be for the large institutions to get them to re-invest in the real economy and to charge for “safe haven ” .

    It’s the safe haven bit that worries me , I still posit that the World economy is stalling /stalled and we’re in for a bumpy year 2015 and if the plebs ( my self included here ) are going to see that their savings are shrinking ( more so in a direct way ) then get told their Pensions schemes are also worthless …..

    Another cynical ploy to boost house prices in the UK , hehe

    We shall see


    PS : if whole sale NatGas dropped by 24% and it makes up 1/2 of the peoples gas bill , why did BG drop its prices by just 5% ? ( considering that they also charge a Service charge seprately anyways …… )

    • I’d like to add my condolences too Shaun.

      With regards to BG, why only gas? Sainsburys and just this morning, Scottish Power (4.8% fall) too. Why does the oil price fall not have any effect on electricity?

      • it should have some but today we’re 31% coal , 40% gas 19% Nukes plus we’re importing about 3% leccy from France and Holland (!) . for all our wind turbines we’re at 4% from them , guess the wind aint blowing much ( or too much ?? )

        Oddly we’re exporting 1.5% to Ireland and Scotland combined ….

        So they pay 24% less for the gas part so 24% of 40% is 9.6% and thats , what whole sale for which they say they charge us double ( half the cost of leccy is running the business ) so divide by 2 and we should have a 4.8% reduction ….

        not holding my breath though


        PS: yes its a bit of a “back of a fag packet” calculation but ….

    • Forbin, with the lack of regard that tptb have shown for the real economy, I’d suggest that neg rates are to get banks to lend to each other.
      That it is so difficult to do so, makes me believe that they are still in deep trouble, and suspect all their rivals are.

      • all banks aren’t equally troubled, problem is in knowing (before they break) who has the worst exposure / capital inadequacy

    • Hi Forbin and thank you for your good wishes at this time.

      As to the gas price move I too feel that it does not represent the full change in market rates. I do wonder if it was a type of unintended consequence of what might be called the Milliband effect i.e they moved to respond to his threat of a price freeze. Meanwhile rather than a price freeze it is price falls which are the topic du jour.

  6. HI Shaun, very sorry for your loss

    With respect to the comments indicating a bid by Central banks to deter Safe Haven deposits of swiss francs, I assume this is purely to reduce the carry trade.

    If you were to simply do a carry trade investment for any of the last 20 years from any of the main global currencies (Sterling, US Dollar, Yen, Euro) and simply stick it in even a 0% bearing account denominated in swiss francs, excluding the post peg unraveling -15% movement, it was an EASY money maker over time.

    Now if the currency appreciation wasn’t a problem the SNB wouldn’t really care, but as it has the effect of causing a lot of pain to the swiss public I can understand WHY the SNB don’t like it.

    Moving to this point about negative rates increasing borrowing costs for loans, I find that particular deceptive by the banks.

    You cannot LEND the same money twice, so either you lend it to a GOVT BOND/GILT for negative yield or lend it to a BUSINESS or HUMAN for whatever the market dictates above 0%. These are mutually exclusive uses.

    Surely the converse is true, if the avenue for any return from GILTS is cutoff then this has precisely the desired effect of pushing institutions to lend to REAL businesses and consumers to chase ANY yield and it means MORE money chasing less business/consumers meaning lower borrowing rates?

    Forgive me if I have missed a glaringly obvious reason my logic is unravelled.


    Anand (First time poster, VERY long time reader! (circa 2008)

    • Hi Anand

      Thank you for your kind words and welcome to the comments section of my blog. You are right to suggest that the banks are being disengenuous about higher interest-rates for borrowers although as some have already pointed out in an unequal world that is true for some. Perhaps they wanted to avoid the subject of negative interest-rates for savers which could do a lot of damage to the banking system and we wait to see what happens in that arena next.

      Oh and in a way the SNB made matters worse with its cap as it allowed more and more volume and quantity to build up. If the had let it go to parity versus the Euro the first time around perhaps it would have brought the reforms we so badly need.

  7. Shaun I was reading your blog whilst listening to ac/dc as any normal pensioner would then your awful news hit me. Today is not the time for questions, they can wait for another day.

    Condolences to you and your family


  8. Shaun, very sorry to hear about the death of your father. It puts economic issues into perspective – whilst important, life and enjoying it is much more important than GDP numbers etc.

  9. Today more than any other, thankyou for your blog Shaun. Im sure your Father was very proud of what you do here every day, and rightly so. It is a very valuable resource you have created. My thoughts are with you and your family.

  10. Shaun,

    My condolences on the passing of your father.

    I suspect he’d have been very proud for the beacon of economic truth and enlightenment that you’ve become through your blog.


  11. Shaun,

    My sincere condolences.

    Will we have only negative interest rates ? I’d suggest it’s only a temporary market phase. European politicians are blind and deaf to economic stresses and danger points.

    Even the BBC are predicting electoral earthquakes whilst bemoaning the rise of “popularist” politicians. However they conveniently ignore the failures of the status quo parties. the unwillingness or inability to offer real solutions, the lack of accountability from our institutions, the excessive remuneration of bureaucrats from public funds and so on

    I can’t predict future economic or political events – but it seems safe to say that pressures are building up and the odds are shortening …

    • Hi ExpatInBG and thank you.

      We have been waiting quite a while for the revolution have we not? Let us hope that we will not have to wait much longer. After all like the ending of the Swiss Franc cap these things happen at express speed when they come.

  12. Shaun
    I’m so sorry to about your father. You have my sincerest condolences.

    I am an avid reader of your blog because, in my opinion, it is the best economic commentary out there. I can only imagine how much dedication it has taken to produce work of such high quality on a daily basis – on today of all days.

    Warmest wishes


  13. Please accept my heartfelt condolences Shaun.
    Sorry I’m a little late – I’m travelling through darkest New Zealand.

  14. Hi Shaun,
    I was so sorry to learn of your Dad’s passing. My thoughts are with you and your family at this time.

    You only have one Dad and they leave a big gap. As a regular spectator to your blog, I have the utmost admiration for your strength to carry on. Don’t forget to spare Mum some time.


  15. Sorry to hear of your sad news Shaun, lung cancer is a terrible disease.

    Your blog and it’s commentors have shown a lot of sincere feeling which is a beacon in these times – amazing how economics can bring people together!

    I particularly like the Johnny Cash version.

  16. Shaun,

    I’ve just been catching up and belatedly send my condolences and offer my most sincere thanks for your blog which is a shining light in these difficult times.

    Paul C.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.