Thread by @fernandoulrich

Since the GFC, @federalreserve, @ecb and @Bank_of_Japan_e purchased collectively over $10 trillion in sovereign bonds, corp. bonds, and other assets.

Majority of new liquidity was directed towards gvrnmnt debt though.

That's the main reason for low/negative rates. Thread 👇

CB Assets / GDP

Fed: ~19%
ECB: ~40%
BoJ: ~103%

In relation to total outstanding debt, ECB and BoJ purchases are much more aggressive than the Fed's.

Outstanding Debt:

US: $23 tri
Japan: $10.2
Italy: $2.9
France: $2.8
Germany: $2.4
Spain: $1.5

It takes less liquidity to influence european and japanese sovereign rates than it does for US Treasuries.

Nevertheless, the Fed has done all it can to lower rates too. QE1, QE2, QE3. If that wasn't enough, Operation Twist was implemented in 2011...

With the explicit goal to lower longer-term rates.

In 2012, yields for 5yr/7r/10yr/30y Treasuries reached historical lows.

In Draghi's Europe, not only did the ECB set short-term rate (deposit facility) below zero, it also embarked on a grand monetary expansion scheme.

After the PIIGS crisis, super Mario delivered the notorious "whatever it takes to preserve the euro" speech in 2012.

Two years later, Europe's QE had taken off. Billions of purchases per month, ballooning its balance sheet to €4.5 trillion.

Preserving the euro meant...

Preventing countries from bankruptcy, which in turn meant lowering debt refinancing costs as much as possible, which entailed lowering bond rates in the market.

The sharp increase in yields during the 2011 euro crisis was the market trying to reassess sovereign risk.

But every attempt by the market to price sovereigns according to fundamentals was dutifully frustrated by the ECB.

Same goes for the BoJ, which has been for much longer on this grand and unprecedented monetary experiment.

Yet it wasn't until 2013 that Kuroda really took extreme

measures to allegedly combat deflation. Adding another Q to the equation, the BoJ started its QQE, quantitative and qualitative easing, purchasing JGBs, corporate bonds, ETFs, REITS.

Then, in 2016, it adopted another easing policy: YCC, yield curve control.

Kuroda set a ceiling for the 10yr JGB yield at 0%. To assure the market the BoJ would be able to achieve this goal, Kuroda promised "unlimited purchases of JGBs". No limit. As much as needed.

After all these extraordinary measures, negative yielding global sovereing debt

Now amount to trillions.

And who is actually holding these assets? According to estimates, central banks account for over 70%.

So whenever I read explanations claiming negative rates are normal and a perfectly natural development by the market due to demographics, technology,

the only thing I can think of is this:

We can have theoretical debates regarding the possibility of negative time preference, but the current bizarre state of negative rates is not natural, is not market-driven, is not a result of investors' preferences.

It's a deliberate policy by central banks around the world

to suppress interest rates using every tool available.

It's the greatest price falsification scheme in history.

{fin}