What Current Interest Rates Really Mean

by Jeffrey P. Snider
Alhambra Partners

On June 14, the 10-year German bund yield traded briefly below zero for the first time. It was an inauspicious record but one that defines the contradictions at the center of all this economic and monetary controversy. On the one hand, that is what central banks tell us they are after especially with QE, to reduce interest rates even at the long end. By buying government bonds all throughout Europe, the reduction in benchmark rates (as sovereigns are judged to be the risk-free equivalent component of the Fisherian hierarchy) is supposed to spread through the rest of the financial system to be “accommodative” to the wider economy. This is “stimulus.”

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