When money is created out of thin air!

in #bonds5 years ago

Part 2 continuation of how bonds fuel economic growth.

On a longer dated bond the return rates have steadily decline. So what if the rate goes negative? Well as of today several countries have met that predicament. Recently France and German were offering long term bonds that resulted in negative yields. That means to pay the government to hold a fix principal for the long duration. It's a depreciation in total cost for purchaser but the country's economy is in such dire circumstances that negative rates were better than no rates at all.

So then how is negative rates creating money? Denmark is now offering mortgages at negative rates. Hence people who are taking out a mortgage is actually going to earn money from it. A negative 0.5% is what some banks are offering. This mean a every month user gets paid 0.5% to the borrower!

Basically Denmark is trying to make people buy houses in turn have liquidity to run the country's economy. Real estate has been booming around Demark due to the negative rates.

There you have it. When rates goes negative the bank accounts are continuously losing money. This in turn makes investors want to invest more in stocks. The great rewards are with stocks as more and more people would rather invest in stocks than bonds.

So the next time you hear rates keep getting lower and lower look forward to the potential of negative rates. That's going to allow borrowing cash very cheap and therefore push investment assets up in price.

Coin Marketplace

STEEM 0.16
TRX 0.15
JST 0.027
BTC 60244.17
ETH 2333.72
USDT 1.00
SBD 2.47