Side effects of a prolonged period of loose monetary policy of the world's leading central banks are gradually making themselves felt. One of the main problems was the difficulty of returning to "normal" interest rates, because with the lack of a sharp post-crisis economic recovery in the current environment it is extremely difficult to expect that growth will gain momentum with an increase in the cost of lending.
That is why any signs of a possible return to recession in the global arena are noteworthy, as such manifestations, directly or indirectly, influence the actions of regulators. A few years ago, with the ever-growing returns on unreliable bonds of Greece and Spain, a number of German bonds began to trade at a negative rate. In other words – investments into reliable assets with a good rating began to bear losses.
If at the time Mario Draghi promised to "do everything to save the euro zone," but was not in any hurry to turn on the "printing press", now the ECB carries out its own version of quantitative easing, and the deposit rate of the regulator is negative. Against this background, the yield on absolutely all the German government bonds became negative, but when you consider the volume of Japanese papers with a "negative" yield, it turns out that investors can bear a loss on approximately $ 6 trillion in assets.
Accordingly, the demand for US debt securities is growing, the yield on which is now declining due to this. If last year the various polls showed consolidated expectations of a return above 2% on ten-year bonds, it has now, despite the increase in the Fed rate reached 1.8%. Moreover, due to the ongoing slowdown in China, investors have to "get out" of the corporate sector, but in fact, the usual mechanisms of financial instruments with fixed income no longer work.
Moreover, if the period of negative deposit rates in Europe and Japan will be delayed, then the consequences will be felt not only by investors but also by ordinary bank customers. Already, yields on euro deposits are minimal. For example, in Germany with an inflation rate of 2.2% the average annual rate on a deposit is 0.4%. Therefore, in the scenario of the retention or the deepening of the negative rate by the ECB, a zero interest rates on deposits is very likely, or the service of keeping money in the bank will be paid.
Latest European statistics are disappointing. Factory orders in Germany "sunk" by 0.7%, while industrial production dropped by 1.2%. After the German statistics, the French went into the negative, showing a drop in industrial production by 1.6% (the worst value for half a year). Accordingly, this is not the best background for the continuation of a correction, and if tonight in her speech (15:00 GMT), Janet Yellen will speak with confidence in support of the Fed's previously stated position, it may well be the impetus for the resumption of the decline of the Eurodollar.
RoboForex Analytical Department
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