Report
What happens when real interest rates are persistently extremely negative?
The combination of the COVID crisis and the war in Ukraine will in all likelihood lead to a protracted period of highly negative real long-term interest rates in the United States and the euro zone. Inflation will be high, while the fall in growth and the context of war will mean that central banks will react little to it . This raises the question of the consequences of a long period of highly negative real interest rates: For economies; one expects a boost to corporate and household investment and an increase in corporate debt leverage; For financial markets; one expects a systematic search for inflation hedge s and bond portfolio outflows , boosting the prices of inflation-indexed bond s and all real assets (real estate, infrastructure, private equity and even listed equities), despite lower growth; Public debt ratios will not follow fiscal deficits higher thanks to the taxation of bondholders.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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