According to the Bank for International Settlements report, the growing acceptance of negative interest rates has reached “vaguely troubling” levels.
Investors have been now paying for the privilege of lending, support for which came from the top central banks including the US Federal Reserve, the ECB, and China’s PBOC that has the amount of bonds trading at negative rates reaching a record $17 trillion.
The central bankers’ bank, BIS noted this, equivalent to 20% of the world’s GDP, wouldn’t have been possible even at the depth of the financial crisis.
While yield is sub-zero in the Netherlands and Germany for up to 25 years and recently in Italy as well, most government debts in Japan and Switzerland have dived into negative territory.
“There is something vaguely troubling when the unthinkable becomes routine,”
said the head of the BIS’s Monetary and Economic Department, Claudio Borio.
Negative yeilding debt is twice the value of all gold ever mined, and 115x the value of the entire bitcoin network. 🤯
That's a $17T bubble people bought into knowing they are guaranteed to lose money unless they sell it to a greater fool.
The definition of a ponzi scheme.
— Rhythm (@Rhythmtrader) October 17, 2019
As such, BIS wants policymakers to use their remaining ammunition with caution as “should a downturn materialize,” they would need a helping hand.
These negative interest rates, however, could be behind the 15% upturn the stock market saw this year, according to Wall Street’s “bond king.”
Bill Gross, the co-founder of bond market behemoth Pimco said,
“Prepare for slow economic growth globally and an end to double-digit market price gains of months and years past.”
In their attempt to ease policy across the world, central banks pushed as much as $17 trillion in bond yields to below zero. This, in turn, boosted stock prices as lower yields on government bonds tend to pump riskier assets’ valuations.
The 10-year Treasury yield has declined from 2.60% at the beginning of this year to 1.696% while S&P 500 is up over 18% this year.
Another risky asset, Bitcoin is meanwhile, up more than 150% in 2019 YTD.
$17 trillion dollars are currently held in negative interest bonds. 17 trillion reasons why you should own bitcoin.
— Cameron Winklevoss (@winklevoss) October 17, 2019
Another factor that would contribute to Bitcoin’s success which is spooking the markets this year is the inversion of the US and other bond yield curves, that historically preceded recessions.
Currently, the leading cryptocurrency is trading at $8,085 with 24 hours gains of 1.35%, as per Coincodex.
BTC bottomed at $3,200 in December 2018 after losing 84% of its value. However, moving in 2019, it went as high as $13,900 before correcting to $8,000.
Currently, the flagship cryptocurrency is getting ready for its upcoming mining reward halving event that historically has been bullish for its price. Even prior to six months to the event, BTC jumped 2.3x in 2012 and 1.7x in 2016, which means before the third halving, we could climb to at least $12,000.