The Bank for International Settlements has underlined the extent to which once "unthinkable" financial trends are now "routine," after the global stock of debt with negative interest rates hit $US17 trillion .
In its latest quarterly review, the BIS noted that as global interest rates have plunged, the amount of corporate and government debt trading at negative rates has surged.Claudio Borio, head of its monetary and economics department, said the $US17 trillion figure was equal to about 20 per cent of world gross domestic product, and negative interest rates had become more pervasive than in previous episodes of market jitters.
While much of the debt with negative yields is held by large financial institutions, he noted that even some households overseas were able to borrow at negative rates."A growing number of investors are paying for the privilege of parting with their money. Even at the height of the Great Financial Crisis, this would have been unthinkable. There is something vaguely troubling when the unthinkable becomes routine,” he said.
Interest rates have been pushed into negative territory in Europe as investors have sought-out safe haven assets and as central bankers have become increasingly desperate to kickstart growth and inflation. However, there is debate among economists over how much negative rates stimulate growth. The Switzerland-based BIS, known as the "central bankers' bank," noted that yields were negative in Japan and Europe, and even in countries with concerns about growth and debt, such as Italy. As well as government bond yields trading negative territory, it said some corporate yields were negative, and some Danish mortgage interest rates had dipped below zero. When bond prices rise in response to strong demand, yields fall.
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