What Happens If U.S. Interest Rates Turn Negative?
To sixty four. It's titled what happens. If interest rates go negative last week the yield on the thirty year government bond in germany went negative for the first time ever now now there are fifteen trillion dollars worth of bonds around the world about twenty five percent of the world's bond supply better priced so they earn earn a negative yield. That effectively means that you're paying when you buy one of these bonds. You're paying somebody money to hold your money. There's a cost cost to actually investing back in episode. Two twenty five it was how to invest in bonds and we talked about the relationship between interest rates and in bonds as as interest rates. Go up the value or the price of bonds fall when interest rates fall the price of bonds go up in order for a bond to have a negative interest rate for bonds that are actually outstanding already. Let's say it's a originally a german bond a ten year bond that was priced the yield of one percent and his paying interest of one percent if rates fall enough the price so so that bond goes up so high that when you factor in the interest payments you're receiving plus the principle that you receive. Let's say at the end of the bond you get one hundred dollars of principal back but you paid one hundred twenty two by the bond then you're going to effectively have a loss but it's not just that the the german government is actually issuing new bonds that have a negative yield in march two thousand nineteen. There was an article in the financial times that mentioned germany had sold two point four billion euros of ten year government bonds at an average yield of negative point. Oh five percent. They said that they received two point. Six times more bids for the debt that was accepted the financial times clarified the negative yield means that investors investors who bought at wednesday's auction and hold to maturity are guaranteed to sustain a loss that was back in march now our in august and the yield on ten year government paper is negative zero point six percent what drives negative interest rates eight and is it possible that we could have negative interest rates in the u._s. What would that mean for retirement savings. What would that mean for the economy. We're going to take a look at that in today's episode before we jump in let me pause share some words from one of this week. Sponsors peleton men's health calls. The peleton bike the best cardio machine on the planet. Why is that well one. It's compact. It's four by two size. It can fit in virtually any space in your house when i checked out the bike in portland. It was amazing really how cool it is. Just very well designed solid alad but compact in the really neat thing is you can adjust the seat height. You can just you move this seat forward and back you can just the handlebar height so it's like