European Money Market – Get Ready to Pay

Government policies have led to visible market distortions. Many European government bonds are trading with negative yields, accounting for almost a quarter of Europe’s government debt market. Perhaps a picture provides a better look at their market. Below is the one month Euro deposit rate currently showing negative 0.08% for putting money into a one month deposit:

 

 

Has the world gone mad? Likely not, but we know from experience that this relationship will not go on forever.

So what’s next? Rates will go higher; they cannot stay negative for long. Think about it: will investors actually pay $0.80 to deposit $1,000? I would think that few people would hold this trade for long.

Where does the money go? Some of it likely goes into the equity markets.