Negative Rates

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Fascinating times as negative rates become more pervasive ...
  • FT are leading with the story "Negative rates stir bank mutiny". Commerzbank are considering starting to store excess deposits in vaults rather than pay the ECB -0.4% to hold the deposits!
  • Meanwhile, German corporate term deposit rates, for 1 year terms have now gone negative. Corporate deposits for instant access deposits, in Germany, and I'm told with some banks operating in Ireland, are already negative. What is new is that term deposit rates are now also going negative.
  • Bloomberg reported on "the land below zero" this week on the Danish experience with negative rates.

ECB policy has had major effects:
- Negative intra-bank rates.
- Negative large-corporate instant access deposit rates.
- Now negative corporate term deposit rates.
- Negative SME deposit rates.
- In some cases, negative pension deposit rates.
- Negative sovereign debt yields for up to 10 year duration in some countries.
- Apart from a tiny number of banks, no effect on retail deposit rates, except rates are marching fast towards zero or 0.01% or virtually-zero for instant access and notice rates.

Where will this end!?
 
Rabo have cut their 2 year rate to 0.00% AER Fixed.

The Rabo 1 year and 1 year 6 month rate is also 0.00% AER Fixed.

Investec recently cut their 1 month notice rate to 0.00% AER variable.

Deposit interest is marching to zero and near-zero.
 
They're heading negative...I hear that some in Ireland will go to -0.5% for corporate money quite soon.
 
Sovereign yields hit new lows today. Does not bode well for the direction of deposit rates.

German 10-year Bunds traded with interest rates below zero for the first time after Japan’s benchmark fell to a new low of minus 0.185 per cent. The UK’s 10-year gilt yield recorded a new low, and the 30-year bond dropped below 2 per cent for the first time.

In Switzerland almost the entire market for Swiss government debt had fallen below zero, with 30-year debt offering an annual yield as low as 5 basis points. The US 10-year Treasury note yield at 1.6 per cent was on course for its lowest close since 2012.
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Could Ireland with it's huge National debt take advantage of negative interest rates?
IE. Depositors lend the country money and pay for the privilege?
 
We have issued debt at very low rates, and issued short term debt at negative rates.

Is that what you mean?
 
We certainly live in extraordinary times.

In my opinion, the advantage of paying down debt, even ultra-cheap tracker mortgages, ahead of schedule is particularly pronounced in the current environment. Even 1% money starts to look relatively expensive when deposit rates are trending to zero (or worse) and there is effectively no inflation to nibble away at the principal balance.
 
Hi Sarenco

Possibly if the choice is staying in cash or repaying the loan.

However, with finance at circa 1%, I would be buying high quality equities (ex US).
 
Irish Treasury Bill Auction Results

Auction date Maturity date ISIN Competitive Amount Sold (€m) Bid/Cover Ratio Issue yield (%) Non-competitive Amount Sold (€m) Total Amount Sold (€m)

10/03/2016 19/09/2016 IE00BV8C9525 500 2.94 -0.22 Nil 500
21/05/2015 23/11/2015 IE00BV8C9301 500 3.41 -0.03 Nil 500
19/03/2015 21/09/2015 IE00BV8C9293 500 3.93 -0.01 Nil 500


RichInSpirirt,

we paid -0.22% on 500m of debt issues on 10-March, to be repaid on 19/9/16.
 
RichInSpirit said:
People pay to lend money. It seems a bit weird to me.
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Weird but logical.

Some banks have surplus cash. What can they do with it?
- Parking with the ECB costs -.40%.
- Parking with other banks often costs -.40%, sometimes more.
- Buying Irish sovereign debt at -.22% or lately even more negative.

Explains why deposit rates are going to the floor. Banks that have excess deposits do not want any more deposits because it is costing them money.
 
With the way bank deposit interest rates have gone, I suppose anyone lucky enough to be a member of CANA/Civil service credit union etc should really be putting their money in these credit unions at the moment with dividends of 2% and 1.5% respectively in 2015 and hope for the same in 2016?
 
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