So, Mr Christiansen, how much would you like us to pay you for the privilege of lending you money? Would 0.5 per cent a year be enough? This is not fantasy. Jyske Bank, a highly respectable Danish financial institution, is offering its domestic customers 10-year euro mortgages at a rate of minus 0.5 per cent. It is paying them to take the money.
The German government knows all about this, as investors prepare to accept a guaranteed loss if they hold its paper to maturity. As markets journal Grant’s Interest Rate Observer notes: “One-quarter of corporate and sovereign bonds the world over is priced to deliver a yield of less than nothing.”
Welcome to the weird world of negative interest rates. It has been a profitable one, too, for earlier buyers. As Lex pointed out this week, German government debt has returned 30 per cent in the past year.
There may be more gains to come, but we are into “greater fool” theory here. We hear the arguments that insurance companies and pension funds need to match asset returns to future liabilities, but this only makes sense if those liabilities are going to shrink, which would be a novelty. Otherwise, lending at a guaranteed loss only makes sense if another buyer can be found who is prepared to risk a bigger guaranteed loss.
As for the banks, they have yet to come to terms with this brave new world. If they charge customers for looking after their money, we will keep the cash under the mattress instead. This shrinks the banks’ balance sheets just when they should be encouraged to expand their lending.
Mr Christiansen may be delighted that he is making money from his mortgage. His fellow Danes may be less pleased at the long-term impact on their economy.
Do they dare scrap HS2?
In contrast to our Mr Christiansen, the UK government is still having to pay interest on its debt, but the rate is below 1 per cent. This will help the advocates for the runaway financial train that is HS2 in the independent review, which the latest transport secretary launched this week.
The first rule of these reviews is to decide on the answer you want and pick the panellists to produce it. So the chairman is a former chairman of HS2 Ltd, and the nine members include the former chairman of the Rail Freight Group, the chairman of Network Rail and the chairman of Transport for the North.
The review is unlikely to conclude that the whole venture is a terrible mistake. More likely is some conjuring trick by which the projected cost can be made to look more palatable — perhaps by terminating the line inconveniently far from London.
To avoid looking like a whitewash, the review must also produce credible projections of ticket revenue and running costs, something the government has lacked the courage to do. The panel might even dare conclude that there is a price at which it makes sense to write off the £4bn already spent and invest instead in a network that desperately needs it.
Do you really need that electric car?
If you thought you were saving the planet by ditching your dirty diesel and going electric, here is a nasty shock. The UK parliament’s science and technology committee has concluded you should give up your car altogether. Widespread personal vehicle ownership, it says, “does not appear to be compatible with significant decarbonisation”.
This is another blow for the UK’s motor industry, gasping from poor sales and pinning its hopes on being saved by these “clean” vehicles. The demonisation of diesel was bad enough, but worse is the thought that the next generation does not aspire to a shiny new motor at all. It is no fun if you are always the designated driver.
The committee concludes that electric vehicles do not eliminate emissions, but merely displace them out of sight, whether through extraction of the raw materials needed for their batteries or to the power generators.
It is more fashionable than ever to fret about climate change, and more than half of UK citizens say they favour “net zero” emissions by 2050, according to an Ipsos Mori survey. Reports such as this one from parliament will show whether we are serious about the sacrifices needed to get there.
A full list of Neil Collins’ financial interests can be found at www.ft.com/collinsportfolio
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