Investors Begin to Consider Negative US Rates

Investors Begin to Consider Negative US Rates

Negative interest rates in the US were once unimaginable. The coronavirus managed to change this idea. While the Federal Reserve excludes this, the impact of the outbreak on the economic and financial markets forced investors to seriously think about the consequences of such a drastic policy change. Interest rate options that measure monetary policy expectations pointed to the possibility of a 23% key federal fund rate falling below zero by the end of December on Monday. According to BofA Securities data, which indicates short-term options in one-year US clearing rates, compared with 9% -10% probability last week. Fed funds futures until June 2021 have been pushing the US economy to the steepest tension since the Great Depression, while pricing it at a baseline below zero. "This is theoretically obviously possible," said Michael Purves, CEO of Tallbacken Capital Advisors. He still thinks that the Federal Reserve is actually "too far" from being negative. Nevertheless, unprecedented price movements show an uplifting market. Investors are concerned that the United States crossing the zero limit may have more devastating side effects in the money markets compared to negative rates in Europe and Japan. "The adoption of negative rates in the US will cause more disruption than Japan or Europe," said Ayako Sera, market strategist at the Trust Bank of Sumitomo Mitsui (NYSE: SMFG) in Tokyo. "In the United States, companies rely on credit markets for financing. Adopting negative rates in the U.S. will disrupt the pricing of so many securities." said.