Nowadays, no one is surprised with sub-zero yields of government bonds. However, most market participants define this situation as abnormal and worrisome. Governors of some European central banks think that keeping low interest rates further could increase the risk of financial stability. This viewpoint is shared by most economists.
The stunning fact is that 53% of all global government bonds are yielding 1% or less at present. Liquidity is in turmoil due to the soft monetary policy.
The ECB assets now exceed $22 trillion, a figure equivalent to the combined GDP of the US and Japan. This fact again confirms the consensus on higher risks of financial stability.
The negative yield phenomenon emerged in Europe after the ECB had launched the QE program. For instance, Germany’s bonds have already gone into the negative territory. In early 2015, Switzerland became the first government in history to sell benchmark 10-year debt at a negative interest rate. After the ECB had announced the QE program, the Swiss National Bank had to abandon the cap of the franc’s value against the euro. The SNB decision pushed the EUR/CHF pair 20% down. As a result, a lot of banks, brokerage firms, and other participants of the financial sector incurred losses.
