How low can they go? What do negative rates mean for savers?Contributors Hugh Gimber, Jai Malhi
A world of negative interest rates is a bleak environment for risk-averse savers, who are being starved of low-risk income from traditional sources.
A financial analyst predicting sub-zero interest rates would have been considered crazy by the vast majority of their peers just 10 to 15 years ago. Yet today, negative interest rates are a key tenet of monetary policy in several developed market economies, as central banks try to coax consumers, companies and governments to spend rather than save.
With global growth slowing and inflation below target in many regions, a number of central banks are set to cut rates further in the coming months. For some, this will mean taking interest rates deeper into negative territory. While the market’s insatiable appetite for policy easing may mean that pricing in several markets is at the more ambitious end of what could feasibly be delivered, the direction of travel is clear (see Exhibit 1).
EXHIBIT 1: CURRENT POLICY RATES AND MARKET-IMPLIED RATES AT 2019 YEAR-END
Today’s top questions
How can we track the health of the US economy?
How is ESG affecting the investment landscape?
UPDATE: Portfolio considerations for investors concerned about a downturn
How low can they go? What do negative rates mean for savers?
UPDATE: “Do or die” - is Brexit set to conclude with no deal on 31 October?
How could trade tensions affect global markets?
Why invest in alternative assets?
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields is not a reliable indicator of current and future results.
J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. This communication is issued in the United Kingdom by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority, Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.