Until recently, negative swap spreads and negative interest rates were theoretical constructs that were not expected to persist in market pricing. Yet, we have witnessed negative United States (US) 10-year swap spreads to bonds and an increasing number of central banks turning to negative interest rates in an effort to stimulate economic conditions. At AMP Capital’s recent Global Fixed Income Forum, we explored the factors driving negative swap spreads, the impact of negative interest rates on nominal bond yields and implications for investors.

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With its high debt, low inflation, and ageing population, Japan is a lab experiment for policy makers across the globe. We discuss the recent policy shift to negative interest rates – and explain why it has failed to relax financial conditions. We believe that Japan is an important and underappreciated source of potential volatility for the global economy this year and discuss what policy options are available to the Bank of Japan to stimulate economic conditions.

Participants: Simon Warner, Steve Hannaford, Callum Thomas.

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A brief summary of the key points presented at the Forum is now available.

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