coin graphHow low can rates go?

The Bank of Japan (BOJ) dove into the negative interest rate rabbit hole last week when it dropped its benchmark interest rate to minus 0.1 percent. If you’ve been following Japan’s story, then you know the country has been struggling with deflation for almost two decades. The BOJ’s goal is to push inflation up to 2 percent. MarketWatch explained the idea behind negative interest rates:
“Central banks use their deposit to influence how banks handle their reserves. In the case of negative rates, central banks want to dissuade lenders from parking cash with them. The hope is that they will use that money to lend to individuals and businesses which, in turn, will spend the money and boost the economy and contribute to inflation.”
If the idea of negative interest rates sounds familiar, it’s probably because Europe has been delving into negative interest rate territory for a while. Several European central banks have adopted negative interest rate strategies, and about one-third of the bonds issued by governments in the eurozone offered negative yields at the end of 2015. It’s an unusual state of affairs – offering investors bonds that pay less than nothing. If investors hold to maturity, they get back less than their investment amount.
While negative rates may not be pleasing to bond buyers, U.S. stock markets were thrilled by the BOJ’s surprise rate cut. Major indices rose by about 2 percent on Friday.
Market performance was also boosted by a bad-news-is-good-news interpretation of weak fourth quarter U.S. gross domestic product (GDP) growth estimates. According to Reuters, slower growth in the U.S. economy raised investors’ hopes the Federal Reserve would hold back on future rate hikes.
Data as of 1/29/16
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor’s 500 (Domestic Stocks)
1.8%
-5.1%
-4.0%
8.8%
8.6%
4.2%
Dow Jones Global ex-U.S.
2.2
-7.0
-13.6
-3.8
-2.6
-0.7
10-year Treasury Note (Yield Only)
1.9
NA
1.8
2.0
3.4
4.5
Gold (per ounce)
1.4
4.7
-12.4
-12.6
-3.5
7.0
Bloomberg Commodity Index
2.6
-1.7
-21.8
-18.2
-14.0
-7.8
DJ Equity All REIT Total Return Index
1.1
-3.4
-8.2
7.5
10.1
6.3
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

*The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.  You cannot invest directly in this index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.

* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Investing involves risk – including the loss of principal

* “Negative Interest Rates”

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