Admittedly, after the Second World War, the Western economies experienced negative interest rates however with the essential difference that these were real, meaning that when the nominal interest rate was 15 percent, the inflation rate exceeded 16 percent therefore producing a real interest rate of minus 1 percent.

Currently, negative interest rates are nominal, for instance the rate of the 10-year German bond is minus 0.59 percent (1), which, added to the last available figure of inflation in the euro zone at 1,00 percent (2), produces a negative real interest rate of minus 1.59 percent.

In short, the saver has never “earned” so little money and the annuitant is facing a real risk of ruin unless he/she increases his/her risk by seeking a higher return on the stock market with shares, or corporate bonds of which it is estimated that almost 50 percent of them are on the verge of being degraded into the “junk” category (3).

This has been observed since the beginning of the historically accommodative policies led by central banks, including the a priori “unlimited” one from the European Central Bank (ECB), with a jump of 319 percent for the U.S. S&P 500 (SPX) index and 224% for its German DAX (GER30) counterpart since the 2008 financial crisis’ bottom in March 2009.

While stock market indexes are still at historic highs in a context of mixed global economic growth, even the most experienced commentators including several former central banks governors tell their concern, more than their confidence, as to what they see as a new bond paradigm whose long-term impact they are struggling to assess.

(1) As of 09/24/2019.
(2) For the month August 2019.
(3) In the United States.

Contents published on do not constitute investment advice.


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