The Race to 0%: Plunging Yields Across The Globe


We are seeing history in the making in the bond market today, with an all-time low in 10-year yields in each of the following countries:

  • Germany: 0.70%
  • France: 0.98%
  • Italy: 2.03%
  • Spain: 1.86%
  • Netherlands: 0.81%
  • Portugal: 2.80%
  • Switzerland: 0.31%
  • Japan 0.41%

History2Source: Bloomberg

What do each of these countries have in common? Slow to negative economic and wage growth and extreme deflationary pressures. This makes sense as interest rates are a reflection of both growth and inflation.

The fascinating thing here, though, and why this historic day may go unnoticed by most market participants, is that we have become conditioned to believe weaker growth is a good thing. Why? Because it means more central bank “action” to prop of stock markets in the near-term.

But stepping away from the stock market, is the race to 0% by global central bankers really a good thing? Only if you believe that short-term stock market prices are the economy. Unfortunately, as I wrote recently, this is becoming further and further from the truth. For if it were, the Japanese economy would be booming today as the Nikkei surges higher. Instead, Japan is slipping into it’s fourth recession since 2008.

As it turns out, creating financial bubbles and asset price inflation does not create growth and prosperity for all. But don’t expect central bankers to admit this any time soon; they are what you call in poker “pot committed” to this policy. And thus the race to 0% is likely to continue as central bankers increasingly compete with one another in the greatest financial experiment in history.

Their goal is simple: drive the expected future return on all asset classes to 0% or even negative levels. This in turn will enable governments to continue to borrow beyond their means and convince the masses that things are great and they should spend what little money they have saved because stock prices are going up. In short, it is a policy of borrowing from the future to satisfy the whims of today, delaying the structural reforms necessary to generate real growth.

Is this good economic policy? Of course not, but with stocks at new highs don’t expect many complaints. Only after faith in these policies inevitably fade and stocks start going down will the blame game and hearings begin. “How could you have let this happen,” they will shout, pointing fingers at one another.

“Oh, what a tangled web we weave…when first we practice to deceive.” – Walter Scott

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.


Edward M. Dempsey Pension Partners New York






Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of two award-winning research papers in 2014 on Intermarket Analysis and investing. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors, an institutional investment research firm. Previously, Mr. Bilello held positions as an Equity and Hedge Fund Analyst at billion dollar alternative investment firms, giving him unique insights into portfolio construction and asset allocation.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.

You can follow Charlie on twitter here.


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