KO 대한민국
베어링 인베스트먼트 인스티튜트
거시경제 및 지정학

Are Negative Rates Really That Negative?

2019년11월15일 - 3 분 읽기

So far, they seem to work in practice, just not in theory. Negative yields seem to have helped extend the cycle, but they carry risks if they linger for too long.

I still remember the classroom silence as my math teacher effortlessly extended the number line on the board to the left and started filling in negative numbers. “They’re just like positive numbers,” he explained unhelpfully. “They’re just negative!” (It took a long time to understand just how combining my positive two apples with my friend’s negative two apples could leave the world with no apples at all.)

My brain gets that same dull feeling when I try to tease intention out of market yield charts that drop below the x-axis. Are markets pricing in the end of the world? Or are negative yields simply an unintended—and ultimately temporary—consequence of the unprecedented response to a global financial crisis? And beyond the practical impact, what about all our financial theories that are based on the bedrock notion that money today is worth more than money tomorrow?

It’s rarely good strategy to bet on the end of the world and, happily, the economic data streams point to a global economy that is slowing, but not collapsing. Equity markets continue to set new highs, and unemployment rates still hover near all-time lows. Yet, even after this month’s rally in risk assets, negative yields aren’t going away.

GLOBAL CENTRAL BANK POLICY RATES

Source: Bloomberg. As of November 14, 2019.

BLOOMBERG BARCLAYS GLOBAL AGGREGATE NEGATIVE YIELDING DEBT (U.S. $TRILLIONS)

Source: Bloomberg. As of November 13, 2019.

More likely negative yields are a vast distortion caused by leaving central banks with a narrow set of tools to cope with the global financial crisis. Their effectiveness has been weaker, especially without reinforcement from fiscal policy, but the economic recovery would have ended long ago had central bankers stopped cutting rates at zero. Denmark was the first to go negative in 2012, and since then Sweden, Switzerland, Japan and the euro area have all followed.

In some sense, this most unnatural of financial phenomena is a logical consequence of a world in which secular forces are contributing to lower returns and slower economic growth. Workforces are growing more slowly due to falling fertility rates and aging demographics. Inflation remains low because of globalization, which keeps price inflation in check, and magic new technologies, which drive down production costs.

These secular trends were already gaining momentum when markets collapsed in 2008 and the world’s central banks uncorked vast amounts of liquidity. This aggravated a savings glut which was already building before the crisis, expanding a supply of capital beyond the pipeline of attractive investments. The result has been low equilibrium rates and one of the slowest recoveries on record.

What’s your local central banker to do in such a world? If the offer of free money doesn’t stimulate enough demand from borrowers, then the next step is to raise the cost to lenders of storing that money through charges on excess bank reserves. Marginal projects should look more attractive when assessed against the prospect of deposits that actually shrink with time. 

Do negative rates work in practice? They worked exceptionally well in one micro-experiment involving a regional currency in Bavaria that slowly lost value if it went unspent. Certainly there is plenty of credit flowing through non-bank channels, and initial studies by the European Central Bank and the International Monetary Fund suggest there has been a boost to credit creation, although it’s probably too soon for a final judgment. 

"It’s rarely good strategy to bet on the end of the world and, happily, the economic data streams point to a global economy that is slowing, but not collapsing."

Worries abound, of course, that the impact may wear off as rates move more negative. There is likely also a “reversal rate” or level at which accommodative monetary policy turns contractionary amid evaporating bank profits. Negative rates hurt the asset-liability structures of pensions, insurance companies and endowments, too. At some point, the prospect of lower pension payouts or tighter lending criteria weaken demand further.

Does it lead to excess risk taking? Perhaps, but that's sort of the point. Soaring equity markets and rock-bottom bond yields have clearly helped extend the cycle. Some buyers of negative-yielding bonds are themselves playing the risk that they will always find someone willing to buy their bonds at a higher price—and an even more negative yield. 

Still, if negative yields have so far delivered some benefits in practice, they’ve also done lasting damage to the theoretical underpinnings of asset valuation and its fundamental principles around the time value of money. 

The capital asset pricing model, the Black-Scholes options pricing model and the humble dividend Discount Model all essentially explode when the discount rate turns negative. 

That rate is most often calculated as r-g, the rate of return less the growth in those returns. If the difference between them is a small number, it can justify very high asset valuations, as we have seen. If the difference turns into a negative number, the models don’t work and there isn’t much of a framework to replace them. 

Pity the poor analysts who must rejigger their algorithms to cope. Think of the jittery investors whose valuations and price targets have suddenly slipped their traditional moorings. Imagine a world in which all investment decisions remind you of the first time your math teacher extended the number line to the left.

해당 자료에 제시된 전망은 작성 시 시장에 대한 베어링자산운용의 견해를 바탕으로 작성되었습니다. 작성된 이후, 다양한 요인에 따라 사전통지 없이 내용이 변경될 수 있습니다. 또한 본 자료에서 언급된 투자 결과, 포트폴리오 구성 및 사례는 단순 참고용이며, 결코 미래 투자 성과 혹은 미래 포트폴리오 구성을 보장하지 않습니다. 투자에는 위험이 수반됩니다. 투자와 투자에서 발생하는 향후 소득 가치는 하락 또는 상승할 수 있으며, 투자 수익은 보장되지 않습니다. 과거성과는 현재 또는 미래성과를 보장하지 않습니다. 

더 읽어보기

또한 본 자료에서 언급된 투자 결과, 포트폴리오 구성 및 사례는 단순 참고용이며, 결코 미래 투자 성과 혹은 미래 포트폴리오 구성을 보장하지 않습니다. 실제 투자의 구성, 규모 및 위험은 본 자료에서 제시된 사례와 현저히 다를 수 있으며, 투자의 향후 수익 혹은 손실 여부에 대해 보증 및 보장하지 않습니다. 환율 변동은 투자가치에 영향을 미칠 수 있습니다. 잠재 투자자들은 본 자료에 언급된 펀드의 자세한 내용과 구체적인 위험요인에 관하여 투자설명서를 반드시 읽어 보시기 바랍니다.
베어링은 전 세계 베어링 계열사의 자산운용 및 관련 사업의 상표명입니다. Barings LLC, Barings Securities LLC, Barings (U.K.) Limited, Barings Global Advisers Limited, Barings Australia Pty Ltd, Barings Japan Limited, Barings Real Estate Advisers Europe Finance LLP, BREAE AIFM LLP, Baring Asset Management Limited, Baring International Investment Limited, Baring Fund Managers Limited, Baring International Fund Managers (Ireland) Limited, Baring Asset Management (Asia) Limited, Baring SICE (Taiwan) Limited, Baring Asset Management Switzerland Sarl, Baring Asset Management Korea Limited 등은 Barings LLC의 금융서비스 계열사로(단독으로는 “계열사”) “베어링”으로 통칭합니다.
본 자료는 정보 제공의 목적으로 작성된 것이며, 특정 상품이나 서비스의 매매를 제안하거나 권유하기 위한 것이 아닙니다. 본 자료의 내용은 독자의 투자목적, 재무상태 또는 구체적인 니즈를 고려하지 않고 작성되었습니다. 따라서, 본 자료는 투자자문, 권유, 리서치 또는 특정 증권, 상품, 투자, 투자전략 등의 적합성 또는 적절성에 대한 권고가 아니며 그러한 행위로 인식되어서도 안됩니다. 본 자료는 투자 전망 또는 예측으로 해석되어서는 안됩니다.
달리 명시되지 않는 한, 본 자료에 제시된 견해는 베어링의 것입니다. 작성 당시 알려진 사실을 바탕으로 신의 성실하게 작성 되었으며 사전통지 없이 변경될 수 있습니다. 개별 포트폴리오 운용팀은 본 자료에 제시된 것과 다른 견해를 가질 수 있으며 고객별로 다른 투자 결정을 내릴 수 있습니다. 본 자료의 일부 내용은 베어링이 신뢰할 만 하다고 판단하는 출처에서 획득한 정보를 근거로 작성되었습니다. 본 자료에 수록된 정보의 정확성을 확보하기 위해 최선의 노력을 기울였으나, 베어링은 정보의 정확성, 완전성 및 적절성을 명시적 또는 묵시적으로 보증하거나 보장하지 않습니다.
본 자료에 언급된 서비스, 증권, 투자 또는 상품은 잠재투자자에게 적합하지 않을 수 있으며 해당 관할권에서 제공되지 않을 수 있습니다. 본 자료의 저작권은 베어링에 있습니다. 본 자료에 제시된 정보는 개인용도로 사용될 수 있으나 베어링의 동의 없이 변형, 복제 또는 배포할 수 없습니다.

19-1013743

X

베어링자산운용은 당사 웹사이트 사용자들에게 최적화된 웹 경험을 제공하고자 쿠키를 사용합니다.
베어링 웹사이트를 이용함으로써, 당사의 쿠키정책법적 & 개인정보고지사항에 동의하는 것으로 간주합니다.