Real interest rates have turned negative in many countries, as inflation remains quiescent and economies overseas struggle.
Yet, these negative rates haven't done much to inspire investment, and Nobel laureate economist Robert Shiller is perplexed as to why.
"If I can borrow at a negative interest rate, I ought to be able to do something with that," he tells U.K. magazine MoneyWeek
. "The government should be borrowing, it would seem, heavily and investing in anything that yields a positive return."
But, "that isn't happening anywhere," Shiller notes. "No country has that. . . . Even the corporate sector, you might think, would be investing at a very high pitch. They're not, so something is amiss."
And what is that?
"I don't have a complete story of why it is. It's a puzzle of our time," he maintains. Some economists, including former Treasury Secretary Larry Summers, have described the predicament as "secular stagnation."
The idea is that "we're stuck in a horrible economy," Shiller says. "Nobody wants to invest, there are no investment opportunities. Somehow, I'm skeptical of that, but I can't prove it."
However, he believes "Europe is a good investment now and the U.S. is not so good, but of course I could be wrong."
Given the fact that rates already are so low, does that mean that the bull market for U.S. bonds is over? The market already has slumped since the 30-year Treasury yield hit a record low Jan. 30.
"The short answer is no," writes Barron's columnist Michael Kahn
. "No matter how strong, every bull market has corrections. And so far, the decline in the Treasury market looks to be just that — a short-term dip in a long-term rising trend."
On the fundamental side, the market seems to be taking in stride the expectation of a Federal Reserve interest rate hike this year, Kahn says. Economists' consensus is that the Fed will move around mid-year.
Meanwhile, "inflation is virtually absent, and oil prices, while firming, are still at multiyear lows," he notes.
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