Negative Interest Rate Government Bonds

Right now there’s a lot of talk about negative interest rate government bonds. Let’s understand what this means for the US and the rest of the world. Are negative interest rate bonds a sign of recession?

Negative interest rate bonds

Most nations and some regions in the world have a central bank. Some central banks are run by the government. Others are privately owned. These central banks try to influence their national economy for the better.

Some of these central banks have tried quantitative easing to stimulate national economic growth. QE means that governments have been paying to buy back their own bonds. This hasn’t worked out well.

Now governments are going the other way. They are selling a new kind of government bond–long term government bonds that pay a negative rate of return upon expiration.

In other words, negative interest bonds are bonds that a government expects to make a profit from at the end of the bond’s lifetime.

Does this sound incredible to you? It is. Who would bet on a horse they knew would lose? Continue reading →

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Could Layoffs Signal a Recession?

Predictions of an upcoming recession are seen daily in global news sources and online. But how can we know for sure what’s going to happen?

Last time we looked at bond yields and stock prices as possible indicators of a coming crisis. Today we’ll look at layoffs as a possible signal of recession.

Layoffs

One of the reasons that the US Federal Reserve raised its rate for overnight borrowing by investment banks and financial traders this year was that employment had improved in late 2015.

However, articles about the employment numbers pointed out that quantity does not always equal quality. Continue reading →

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What’s up for 2016?

Forecasting an economic recession  

A number of serious indicators of recession in the US and elsewhere in the world have been visibly in play since last fall.

Predictions of an upcoming crisis are seen daily in foreign news sources and online. But how can we know for sure what’s going to happen?

Right now the biggest downturn lies in the financial markets in the US and elsewhere. Stocks have plunged this year. Likewise, long-term US government bonds (e.g., thirty-year treasury bonds) are becoming less popular with buyers too.

The long-term government-bond trend is a good indicator of recession, but the current stock market slump isn’t necessarily so.
Continue reading →

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