The Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association unanimously recommended that the government allow for its auctions of bills to price at negative yields. TIPS have sold for a negative yield at the latest auction for a total of $15 billion.
Negative yields may not be the exception but become more of the norm in the current financial world. There is an incentive for governments to create an environment where yields are negative. First, it obviously cuts down the cost of borrowing. Second, the cost of borrowing any asset is lower and helps debtors. Third, negative yields will force money into riskier assets which may help economic growth. Of course, it may not be good for any economy to have investors blindly reach for yield.
Allowing for negative yields will provide no incentives for the government to cutr budget deficits. It also creates an incentive for governments to increase the cost for investors to hold positive yielding assets. This is a variation on the "financial repression" argument that is growing attention in the markets.
Negative yields may not be the exception but become more of the norm in the current financial world. There is an incentive for governments to create an environment where yields are negative. First, it obviously cuts down the cost of borrowing. Second, the cost of borrowing any asset is lower and helps debtors. Third, negative yields will force money into riskier assets which may help economic growth. Of course, it may not be good for any economy to have investors blindly reach for yield.
Allowing for negative yields will provide no incentives for the government to cutr budget deficits. It also creates an incentive for governments to increase the cost for investors to hold positive yielding assets. This is a variation on the "financial repression" argument that is growing attention in the markets.
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