Negative yields: What could go wrong?

Some central banks have cut interest rates into negative territory in an effort to eke out some economic growth, but the step could spur unintended, counterproductive outcomes.

“Negative rates could backfire,” Francesco Garzarelli, co-head of macro markets research at Goldman Sachs, said in a note Friday. “At least some segments of the population could feel poorer, and less secure,” he said. “Rather than lifting consumption and borrowing, ultra-loose monetary policy could perversely lead to an increase in precautionary savings and a slower economic recovery.”

In an effort to ward off potential deflation and bolster nearly flat-lined economic growth, some central banks — including the European Central Bank (ECB), the Swiss National Bank and central banks in Sweden and Denmark — have cut rates into negative territory.

A big chunk of the government bond market has gone negative: JPMorgan estimated that in January, around $3.6 trillion worth of developed market government bonds—or 16 percent of its Global Bond Index—was at a negative yield.


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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