For what inane reason would someone loan money to another…and PAY THEM A FEE FOR THEIR KINDNESS IN BORROWING? No, this is not an editorial mistake…the fee is actually paid to the borrower, not the lender. The lenders would rather loan money to the government and knowingly get back less than they lend rather than keep it “under the mattress.” Sounds crazy doesn’t it? Well it is actually happening in Germany as we speak.
Yesterday, the German government issued the equivalent of T-Bills at a negative yield, underscoring the extreme nervousness over the European debt crisis and the desire for security at all cost.
Now how does this affect us as financial services professionals in the U.S.? It really has to do with context, about which we have spoken in articles a number of times before. U.S. clients and prospects alike are similarly nervous over the European debt crisis…how could they not be, given the way it has been plastered all over every media source for the past year? Likewise, a comparable erosion of faith in the U.S. financial condition is front and center in the minds of U.S. citizens, and it is likely to grow as the intensity of the political discourse ramps up in the months ahead.
Every financial services professional should at least be able to discuss the unusual phenomenon of negative interest rates. Why? Because it adds to your credibility of being knowledgeable about “all things financial” and because clients will hear about it in the media and wonder why it occurs and if it could happen here…. And it very well could.
There is a very good article, which will give some insight into the issue and provide discussion points for your conversations with clients and prospects. Here are some highlights from the article:
- An auction of German government short-term bonds produced a negative yield for the first time ever.
- Nervous European financial communities are opting for security and liquidity over returns.
- Buyers are paying for the privilege of lending money to the debt issuer.
Now…don’t forget the importance of context in being able to frame the value of you as an advisor and your solutions to solve clients’ financial problems.To gain more insight and context into being a more valuable financial services professional check out our course, Lessons From Financial Market History.