Humpfh. So for ten years all the smart people have been telling us "interest rates can only go up," and now they are all telling us "interest rates can only go negative?"
And one of the reasons the smart people gave for saying they could "only go up" in the first place was that they couldn't possibly go negative.
Meanwhile, in 2014 economists polled by Bloomberg said, unanimously, 68 out of 68, not one demurral, that the 10-year rate would go up over the next six months, and it went down. Ergo, nobody knows nothing.
I just don't get it. In 2003 the Fed rate was down to 1% and nobody was even talking about negative interest rates. 2008-2015 it was below 0.5% for seven years, I can't remember if much was said about negative rates but I don't remember anyone stressing about it. Why a sudden fear of negative interest rates now with the rate above 2%?
As to what I will do personally, I see nothing at all to be gained by trying to prepare in advance. It will happen or it won't. If it does happen, what I will do will depend on the range of choices available to me then, which is as unpredictable as anything else.
Even if short-term rates become negative, there could still be a normal yield curve and long-term rates could be positive.
Even if rates are negative, if they are falling fast enough, total return could be positive.
Saying that there exist some US bonds somewhere with negative interest rates is very different from saying that the bond funds I use--Vanguard Total Bond Index and Vanguard Inflation-Protected Securities--are doomed to inevitable, sustained negative total return.
Even if bond funds have negative total return, it could still make sense to hold them if the difference in bond and stock returns stays about the same, unless there was some obviously superior alternative to bonds as a way of stabilizing a portfolio.
Now if at some point it becomes crystal clear that FDIC-insured bank accounts were much much better than bonds, hey, I'd do the obvious and stick take my money out of bond funds and stick it in a bank. But I see no reason to do it early; oddly enough, the condition that makes it attractive--falling interest rates--is also a condition that might a little loft to bond market values, so it would might not be a bad time to sell. I don't think it will really work that way, though; negative interest rates would be a major dislocation in the financial system, and something tells me banks would react, probably by imposing humongous fees on every kind of account.
Last edited by nisiprius
on Sun Aug 11, 2019 9:45 am, edited 2 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.