Rus News Journal

Rates from the World behind the looking-glass


Crisis has finished Europe to negative interest rates. The fear before economic accident of unprecedented scales has led to that investors are already ready to destroy own capital voluntary. Win from it only the strongest countries.

imagine the world in which not you pay that buy the goods in shop, and pay to you. Or the world in which you pay that go for work, or the world in which the bank pays to you for the credit given out to you. Absurdly? Yes, but right now this kingdom of curve mirrors dominates in the world financial markets. The fear of investors has generated a surprising phenomenon negative nominal interest rates. Short-term state bonds of Switzerland, Germany, the Netherlands, Austria, Luxembourg, France, Finland, Denmark take place last months with negative profitableness (schedule 1 see). That is creditors pay to borrowers for honour to be holders of their debt. How such it is possible in the rational world of the finance, and what all it means for the world economy future?

on a bottom and more low
the Principal cause is clear. It is crisis, expectation of world depression and fear of loss of money in unreliable actives. There is a radical divergence of rates " good " and " bad " borrowers. And as " good " it is not enough, demand for their debt is greatest, as a result of the rate reduce to zero and even more low. Funds of the bonds, which investment declarations forbid to hold means for bank accounts, are urged to be put in something at least a little - malski reliable.

and reliable becomes ever less. The European crisis vykosil weight of actives which were considered bezriskovymi earlier. According to the special instruction of Eurocommission of 2006 which are based on principles of bank regulation " Basel - 2 " to all sovereign borrowers to the countries To members of EU the zero credit risk was appropriated. Banks could buy as is wished many state bonds of Greece, Portugal, Spain and etc. After all they admitted regulators bezriskovymi: the probability of a non-return on them was considered zero, and under them it was not necessary to create any reserves.

a default of Greece in March 2012 - go and losses of investors under its sovereign bonds have shown that those banks which blindly followed assurances of the European regulators, to put it mildly, were mistaken. Bezriskovyh actives it was reduced: for example, from state bonds of Spain and Italy investors run so that only heels sparkle. Where? In the smooth waters, which choice it is insignificant these are state bonds of the USA, Great Britain, Switzerland, Japan, the countries of Scandinavia and the strong countries of an eurozone. As a result of the rate under short-term state bonds reduce to zero and more low. On long-term tools of the rate while below zero have not fallen, but profitableness on them at record-breaking low levels (see Schedule 2). Plus to that the market is rather afraid of a collapse of euro there is a hope that Germany, Austria, France, Finland and the Netherlands investor all - taki will not throw, as Greece, and will pay off at a human course in stamps, shillings, francs and guldens. Well or that will replace euro in a healthy part of Europe. In a case with the strong countries of an eurozone one more factor is important: purchase of the German or Dutch debt papers, let even with negative profitableness, can be considered as an option on dojchmarku. Has paid for the bond in euro, and on an exit you will receive the sum of new currency.

flight from risk
the Question: why investors prefer to put up money in the state bond of reliable borrowers under the negative rate, instead of simply to store money in bank at least under the minimum rate? The matter is that on institutional investors insurance of bank contributions does not extend. Thus, in case of bankruptcy of bank they lose. When you hold means in bonds, anything it is impossible to lose, unless Germany or Switzerland will go bankrupt, in what the market does not believe at present.

negative profitableness this mistrust not only to euro, and to all financial system. Better to say, the large sums there is no place to store, reliable banks are not present any, from here and demand for bonds with negative profitableness. The investment idea in the conditions of global financial crisis is simple: return from the capital is important not, return of the capital is important. Or as a variant it is better to lose percent shares, than tens percent.

It turns out that investment tools with higher profitableness, than at state bonds of reliable borrowers, are very attractive. But they have a big lack risk. Actions, bonds of borrowers in developing economy, raw actives are good only in the conditions of growing global economy. And now economic prospects on a global scale do not please. In Europe debt crisis and recession, and a situation can sharply worsen in case of eurozone disorder, in the USA extremely weak, anaemic growth with good chances to move down in recession, the history of success BRIC too fades in the face of delay of economic growth in China is especially indicative. Raw materials, actions, bonds of countries BRIC in the conditions of deflationary recession too can give strongly in the price. Besides, the mentioned tools for large investors malolikvidny these ponds are too small for large fish. It turns out that state bonds with negative rates in such context simply do not have worthy investment alternative.

the known British economist, head Fulcrum Asset Management Gejvin Devis, explaining a phenomenon of negative rates, speaks about " an insurance premium on a case of economic accident ". In its opinion, the probability of global economic accident (which it defines as falling of real gross national product more than on 10 %) has essentially grown since 2008. Before throughout all post-war period in consciousness of investors such risk was simply inconceivable. Comprehension of that accident all - taki is possible, puts under the big doubt risky investments. Considering that under state bonds of reliable borrowers the risk of a default is insignificant, in their price the insurance premium, unlike other actives is put.

the above the probability of economic accident, the more expensively the insurance, the is more absolute value of the negative rate and the more attentively creditors concern reliability of borrowers. However the decreasing rate on a state debt only raises reliability of the borrower: the more low profitableness under state bonds of Germany or Switzerland, the more low expenses on payments on percent. Besides the negative rate on a broader scale destroys a debt part even in nominal expression. Debt obligations of unreliable borrowers do not possess an insurance premium, the risk of a default on them in process of growth of risk of accident grows, the award for risk in the form of high profitablenesses too grows, and as a result they start to behave as vysokoriskovannye actions. Reliable borrowers become even more reliable, unreliable even more unreliable.

a fear bubble
Push a financial system to negative rates and world Central Banks, though and from good intentions. The Central Bank of Denmark in the beginning of July has for the first time in history lowered the depositary rate from 0,05 % to a minus of 0,2 % annual. ETSB recently has lowered the depositary rate from 0,25 % to zero, and, according to a member of operating advice ETSB of Benua Kera, too thinks of introduction of the negative depositary rate. So radical offers are dictated by inability of traditional methods of a monetary policy to recover credit activity in an eurozone. Banks hold on depositary abacus ETSB of hundred billions euro this money does not go to economy.

calculation ETSB that zero and furthermore the negative depositary rate all - taki will urge banks to overcome fear of possible losses and to renew crediting. The scheme, however, not irreproachable: quite probably that banks all - taki will prefer to suffer rather small losses of the capital on quite reliable abacus ETSB. The same logic, as at purchase of state bonds with negative profitableness: better the guaranteed small loss, than the big uncertainty. While ETSB reflects, a leah it is necessary to declare the negative rate, Denmark already became range of a nonconventional policy.

one more possible defect of negative rates of Central Banks The similar policy will not contribute at all in crediting renewal, and to the contrary, motivates investors to purchase reliable bezriskovyh state bonds under the negative rate even more strongly. That is, there will be a situation of a competition of negative rates: who from reliable borrowers destroys the capital least?

with profitablenesses of short-term state bonds of reliable emitters it is already possible to name a current situation a fear bubble. A usual market bubble these are irrationally growing prices of any active which are warmed up by euphoria and optimism of buyers. Here the same bubble, only in mirror reflexion. It is inflated in addition by pessimism of creditors, as a result they are ready voluntary and osoznanno to destroy the increasing share of the capital.

besides that rates negative, in due course their absolute value increases. For example, the rate on vysokolikvidnym to two-year state bonds of Switzerland has overcome border of a negative zone in April, in June they bargained with profitableness a minus of 0,25 % annual, now profitableness has reached to a minus of 0,43 %. When this bubble of fear will cease to be inflated? Perhaps when to creditors will construct more cheaply storehouse for cash, than to pay to borrowers for capital savings?

negative rates appear as reaction to possible accident, but thus can approach it. If the fear bubble exists long, it will have negative consequences for real economy. At least because the future pensioners in the conditions of ultralow rates should save up much more. Growing level of savings of the population will knock down consumption even more. And further on a spiral: it is less consumption it is less than manufacture, from here dismissals and decrease in salaries and more is less demand and etc. The wonderful new world of negative interest rates will not be iridescent.