Market Thoughts Archive

Skating on thin ice

Posted on March 15, 2015
Central banks cutting interest rate to zero or below zero might be quite risky. The constant money pump and the quantitative easing programmes had already put pressure on the government bonds yields, in addition, these last months, European bond yields has fallen to a record low (even the Italian, Spanish and Portuguese bonds – no more panic like a few years ago?). This all drove short and mid-term bond yields negative. Moreover, ECB’s QE programme, launching in mid-March, can put more pressure on yields and keep them on minimum low. The reason to all this is to boost European economy, to promote lending and to reduce the funding cost of debt service. However, politicians become idler as having these convenient conditions mean they can postpone structural changes that could have ensured long term economic stability. Interest rate can obviously not stay this low forever and once they start rising, honestly, many countries will not be prepared for its negative impact.

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