Friday Thoughts: negative nominal interest rate. Yields can always go more negative and the convexity at negative rates is huge.
Below zero rate is therefore NOT about INCOME but all about CAPITAL GAIN. Furthermore, it’s also about how you fund it. If short-term rates are more negative (which they are in a decent % of the multi trillion $ global bond market), negative yielding bonds are still a positive carry.
Druckenmiller said @ an interview @ The Economic Club of New York that 3-4% interest rate / cost of capital is the threshold that prevents massive mis-deployment and mis-allocation of resources in our financial system given human nature.
Sooner or later, we all have to wonder if (1) the Modern Monetary Theory (MMT) will be realize by the global banking system and (2) more importantly, is how asset will be valued upon and the distribution of those who have access to credit (which can they be deployed into value creation assets) will ultimately, it’s impact on wealth disparity.
Also, interest rate is highly correlated with housing price and LT US interest rate has been downward trending (since several decades ago), one might have to wonder what will happen once we get close to zero bound range (perhaps even negative). We can probably study what the housing market has performed since European Central Bank ventured into the negative interest rate range. Though it is worth noting this is 40,000 feet view (as I am not too familiar with the European housing market).
What are your thoughts?
Intersection notepad 