Across the globe, central banks have been implementing stimulative approaches, whereby nearly fifteen trillion dollars ($15T) of worldwide debt trades are experiencing a declining rate.
In fact, Kyle Bass, Hayman Capital Management (HCM)’s chief investment officer and founder, predicts that interest rates in the US will continue diminishing until they get to zero.
For instance, ten-year yields depicted by France and Germany are negatively inclined.
China has similarly incorporated stimulative strategies to counter dwindling economic growth. As a result, global central banks are contemplating on using quantitative easing so that they can mitigate the continuous decline in interest rates.
US interest rates reflect a global trend
HCM’s founder asserts this is a trend being witnessed in worldwide interest rates, and central banks should expect financial relieving.
Bass thinks that the US holds ninety percent (90%) of the globe’s investment-grade debt.
As a result, the United States (US) is the only nation that holds an integer when it comes to bond yields. Bass asserts that all the funds obtained will be channeled towards this venture.
Conversely, China has incorporated stimulative strategies to counter dwindling economic growth.
Global central banks are contemplating on using quantitative easing so that they can mitigate the continuous decline in interest rates.
The US has not been an exemption when it comes to dropping interest rates.
For instance, muted inflation and worldwide developments were cited as reasons why interest rates were cut by twenty-five (25) basis points.
This was prompted by the Federal Reserve in June 2019. It is worrying that this is speculated to continue because lower rates are expected in September 2019.
US rates at jeopardy
Bass believes US rates will diminish until they get to zero because politicians are continuously disregarding budget deficits.
Additionally, the situation is worsened by slow economic activities in China and Europe because dire effects may be inevitable.
Bass also asserts that the printing of more money by central banks usually has unintended impacts. For instance, the poor become poorer while the middle class stagnates. The rich are the primary beneficiaries as they become wealthier.
The trade war between the US and China is detrimental because of initiatives, such as slapping of tariffs on many goods. As a result, uncertainty has been instigated about the nation’s future economic and profit growth.
Bass believes Trump’s administration is doing more harm than good because it is propelling diminishing interest rates.
The fate of interest rates in the US will affect the cost of living. As a result, various debates have emerged, for instance, whether free college should be permitted or not.
