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The more central banks suppress interest rates, the more they'll suppress gold

Section: Daily Dispatches

'Financial repression' can work only if it's comprehensive. No escape from the fiat system can be allowed.

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Negative Rates to Shake Up Financial System, Experts Say

Ralph Atkins and Elaine Moore
Financial Times
Monday, February 16, 2015

LONDON -- Falls in European interest rates into negative territory could profoundly affect the workings of the financial system and there is little chance of benchmark borrowing costs rising in the year ahead, top investment managers and strategists have warned.

Yields, which move inversely with prices, have this year dropped below zero on a rapidly expanding range of European governments' bonds -- and even some corporate bonds. The declines, which are driven by the European Central Bank's "quantitative easing," mean historically low borrowing costs. But senior finance experts interviewed by the Financial Times saw worrying side-effects.

... Dispatch continues below ...


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"This could be the makings of a completely new environment for global bond markets," said Andrew Milligan, head of global strategy at Standard Life Investments, at the FT's debt capital markets conference in London. "If it actually becomes permanent ... there could be some very significant capital flows." ...

Negative interest rates mean investors, in effect, pay to lend their money. Jerome Booth, former head of research at Ashmore Group, said: "It is perfectly acceptable for a government to try to get a negative yield -- it sounds a good deal. The problem is: Why would investors do it?"

The ECB's action has forced countermoves by central banks outside the eurozone. Danish and Swedish five-year bond yields ended last week at minus 0.48 per cent and minus 0.04 per cent.

Neil Williams, group chief economist at Hermes Investment Management, said: "It smacks, surely, of the first signs of what you could call a currency war. Not all central banks can push their currency down sufficiently to stoke up demand . ... I am not so sure it is the solution."

Some $2 trillion of European government bonds over more than one year's maturity have negative yields, according to JPMorgan.

Yields are also negative on Swiss government bonds, and this month turned negative on some euro-denominated debt issued by Nestle, the Swiss food manufacturer.

... For the complete report:

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