Once Taboo, Investors Begin to Imagine Negative U.S. Rates

by Saqib Iqbal Ahmed, Tom Westbrook

NEW YORK/SINGAPORE (Reuters) – Negative interest rates in the United States were once unimaginable. The coronavirus has changed that.

While the Federal Reserve has all but ruled it out, the sweeping economic and financial-markets impact of the pandemic has forced investors to give serious thought to the implications of such a drastic policy shift.

Rate options, which gauge monetary policy expectations, on Monday implied a 23% probability that the key federal funds rate will go below zero by the end of December, according to BofA Securities data, which cited short expiry options on one-year U.S. swap rates. That compares with a 9%-10% probability last week.

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