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Interest Rates still Negative in Developed Countries as Global Debt Explodes to $230 trillion

Tadhg Gaelach

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LONDON, Jan 9 (Reuters) - U.S. and UK interest rates are rising, the European Central Bank is cutting back its bond purchases and even the Bank of Japan is hinting it will turn off the stimulus taps one day.

With rates rising and central banks no longer expanding their balance sheets, monetary policy around the world will tighten more in 2018 than any year since the crisis.


Yet the real cost of borrowing, taking inflation into account, remains low historically and perhaps dangerously low. Real interest rates across the developed world have been negative since October 2016, and look set to remain so for some time.

This is music to investors’ ears. Negative real rates and yields play a huge part in keeping broader financial conditions loose, which in turn is powering the “melt up” in financial assets.

According to Goldman Sachs, financial conditions in the United States are looser now than when the Federal Reserve started raising rates in December 2015.

Despite the Fed’s five rate hikes in the last two years, real U.S. interest rates remain negative. Depending on which measure of inflation you use, real rates are as low as -0.5 percent.


Countrary to the popular perception, Japanese real rates are the highest of all G4 central banks, while real 10-year bond yields in Britain are around the lowest they’ve been for six years.

COLUMN-Policy tightening? It's real rates that matter for markets: McG