Investors are taking the initiative and pre-empting negative interest rates
Negative interest rates are on the way. Now’s the time for investors to boost their portfolios to get ahead of the curve and accumulate wealth.
Earlier this week we saw rate options indicate a 23% probability that the key federal funds rate will fall below zero by the end of this year, according to BofA Securities data.
And it’s not just the United States heading for this situation.
Yesterday the Bank of England Deputy Governor insinuated that the UK could also be heading towards negative interest rates.
Even a few months back, a new global era of negative interest rates would have been inconceivable. But everything has changed because of coronavirus.
As central banks across the globe attempt to curb the economic hit of the pandemic, we will likely see more and more of them make a radical policy change of course and take rates below zero – like their peers in Europe and Japan.
Indeed, the debate about the effectiveness of negative interest rates on bolstering economies is rife. However, consumers and investors could see the underlying economies being in jeopardy and, consequently, this may lead to a fall in consumer and investor demand.
Of course, the question of whether negative interest rates will help the ‘real economy’ or not will carry on, but they undoubtedly help to boost financial asset prices.
As such, market-savvy investors will be seeking to reinforce their portfolios before the next cuts take place and the likely ensuing price rise. They are making the most of the lower entry points now before the next major rally.
Furthermore, people with savings in the bank are getting no returns due to the ultra-low interest rates, so a move to negative rates will give them further incentive to hike their exposure to equities, for example.
Naturally, we don’t know whether slashing rates from the current low levels will resolve the issues sparked by the coronavirus pandemic.
That said, because of the economic situation and intimations from central banks, I believe more rate cuts are looming, as they are aware that they cannot keep printing money.
This will subsequently drive up financial asset prices, which is why many investors are now seeking to get ahead of the curve and accumulate wealth.