Negative outlook on interest rates, soybeans gain
Dec 7, 2012 at 5:10 PM
Here is this week’s edition of Futures File, our weekly commodities wrap-up:
Argentine Rains Yield Soybean Gains
Heavy rains in Argentina are impeding soybean plantings, threatening that nation’s crop. Muddy fields are delaying planting, which may cause a smaller, lower-quality crop. Argentina is the world’s third-largest soybean producer, after the United States & Brazil, accounting for 18% of global production. Fears about crop quality and size caused the soybean market to rally this week, leading a 46 cent per bushel rise (+3.1%). As of midday Friday, soybeans for January delivery were worth $14.85.
Negative Outlook for Interest Rates
Once considered impossible, negative interest rates are becoming a reality around the world. Over the past few years, banks and central governments have become sought-after safe-havens for investors who fear placing money in stocks, real estate or other investments. As demand for a “safe” place to store money grows, banks and governments have been lowering the interest rate paid to depositors, and some have even begun charging depositors to hold onto their money. In effect, depositors pay the bank or government for the “privilege” of having the institution guarantee that they will get their money back in the future.
One of the more extreme examples of this phenomenon is Switzerland, where the government is able to borrow at -1%, a price that European investors are paying to avoid having their money tied up in Greek, Spanish or Italian bonds. Recently, interest rates have also fallen into negative territory in Japan, Germany, the Netherlands and Belgium. In the United States, short-term Treasury Bills sold with negative interest rates this year and some banks have begun charging depositors to hold onto funds.
On Thursday, the President of the European Central Bank, Mario Draghi, announced that the bank is “operationally prepared” for negative interest rates, signaling that the ECB may be the next institution to charge depositors to hold onto funds. This announcement was received negatively by traders this week, who sold the euro and bought other higher-yielding currencies, like those of Canada and Australia. By Friday, the euro had fallen to $1.2877, down more 2.5 cents (-1.9%) from its high on Wednesday.