Volume 6 • 2019 • Issue 8

40 | 2019 | Issue 8 S upporting Y our P ractice While economies were slowly recovering, there were small rate shifts—both up and down—but overall, we have seen historically low interest rates for the past decade. There are several reasons why rates have remained persistently low: • Worldwide economic growth has been inconsistent. The Canadian and U.S. recoveries have been steady, but slow, and much of the world has done worse. So central banks have been forced to keep rates low to help stimulate growth. • Recent trade disputes, the Chinese slowdown, and uncertainty in Europe are further contributing to slower growth. • An aging population is focusing more on saving, and reducing risk, which could also be pushing rates down. • It benefits the U.S. to keep rates low because of their large federal debt. Experts say there has been a paradigm shift 1 and we should look at low rates as the new normal. But how low can they go? Someday You May Pay the Bank to Hold Your Money! Sound impossible? It’s called negative interest rates. It started in 2009 when Sweden set a rate of –0.25% 2 to encourage banks to lend and businesses to invest in growth. Since then, Japan and other European countries, as well as the European Central Bank have followed suit. Today, negative interest rates represent 30% 3 of the global bond universe, and there is $17 trillion 3 worth of negative yielding bonds worldwide, some as low as –0.75%. 4 Why would anyone invest in bonds that lose money? Investors are desperately seeking safety for their capital in the face of uncertain equity markets. There is also the fear that rates could go even lower, prompting some to take action before it gets worse. The market crash in 2008 had a profound effect that continues to this day. When it happened, central banks around the world lowered their interest rates drastically to encourage business investment and jump start their battered economies. That was to be expected. It was certainly not expected that they would stay stubbornly low for so long. Are Low Interest Rates the New Normal?