Morning Report Tuesday 2nd February 2016
What can negative interest rates mean for equities?
Last night 15 year interest rates in Switzerland fell into a negative yield which is likely to add to capital flows out of Europe, further devaluing the Euro. Simply explained if a local doctor is having to pay a fee to save, he actually goes backwards from a cash perspective; so he will be looking to put his money elsewhere to receive traditional positive interest e.g. Equities and / or offshore.
At the end of 2015 approximately 30% of debt issued by the Euro zone had negative yield and people are now talking about this recent phenomenon spreading further afield as world growth continues to falter.
Stock markets around the world were ignited by the Bank of Japan (BOJ) statement that its now prepared for negative interest rates illustrating the belief that some of these savings which receive a negative return will move to equities.
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