Interest Rates: The Zero Percent Solution

US interbank lendingBy Mark Gilbert – The saying of radical things is easy sport among central bank watchers. If they’re wrong, the wave of consensus erases most evidence they ever said anything at all. If, however, a wild, contrary call proves right, the rewards can be spectacular.

The bond market is screaming a warning that deflation, defined as a sustained period of falling prices, is a much bigger threat than price increases. Ten-year government debt yields in the U.S. and Germany are in a race to see which can be first to drop through 2 percent; two-year Treasury yields are at a record low, below 0.5 percent, while Germany’s 30-year borrowing costs are also the lowest ever seen. Wherever you look in the fixed-income market, inflation has been vanquished. more>

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