Negative rates and Europe’s stable FX, bond markets

By Blu Putnam, Chief Economist & Erik Norland, Senior Economist, CME Group

Negative Rates: Four Real World Experiences

• Sluggish growth, low inflation led to adoption of negative rates.
• Four central banks, including ECB and BoJ, cut rates below zero.
• The goal was to increase credit flow, exports, consumer spending.
• FX markets considered negative rates monetary tightening.

Europe’s Calm FX, Bond Markets Masking Anxiety?

• European FX, bond markets have been calm despite economic fallout.
• Implied volatility in EURUSD at-the-money options spiked briefly in March.
• There has been active buying of out-of-the-money put and call options.
• Purchases reflect concerns over likely extreme moves in the euro.