Please see Chandler’s updated whitepaper where we revisit “Negative Yields – and Why they are (Still) Unlikely to Happen in the US in 2020.” This thought piece is an update to the 2019 whitepaper by Scott Prickett, CTP, Deputy CIO, Julie Hughes, Senior Portfolio Strategist, and Carlos Oblites, Senior Portfolio Strategist, and examines the unprecedented growth of negative yielding debt globally, and what the outlook is for this phenomenon in the United States.

Imagine a world where lenders pay you to borrow money, debt service on a mortgage is structured so you pay back less than the amount borrowed, and bank deposits cost you money rather than earn you money. Even before the pandemic, this was the new normal for a number of developed economies currently implementing Negative Interest Rate Policies (“NIRP”) in order to spur growth and reduce recessionary pressures. In many cases, the detrimental economic fallout from the pandemic has increased the likelihood that NIRP will be a tool used by global central banks for years to come. The paradigm shift ushered in by NIRP across the globe has grown considerably. The unprecedented growth of negative yielding debt, as well as the economic challenges presented by COVID-19, has left many investors wondering if negative yields are coming to the United States as a Federal Reserve (“Fed”) policy decision, with the U.S. being one of the last developed economies continuing to eschew negative rates altogether. In fact, from a secondary market standpoint they already did, as rates on U.S. Treasury bills turned negative on March 25th; but so far, the event was short-lived and turned out to be measured in days.  Although we believe negative U.S. yields are not probable, it is certainly not an impossible scenario that the Fed could use the tool should the pandemic take a turn for the worse causing additional lockdowns with corresponding economic damage. (Nevertheless, the keyword in the title of this article remains “Unlikely”).

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To read the original whitepaper from September 2019, please click here.