Goldman Sachs's Solomon Says Negative Rates May Cause Volatility

Goldman Sachs Group Inc.’s co-head of investment banking David Solomon said investors seeking better returns amid negative interest rates in parts of Europe and Asia could end up jarring international markets.

“This monetary policy has forced investors to reach for yield and extend duration,” Solomon said Monday at the Milken Institute Global Conference in Beverly Hills, California. “How people respond to negative rates could lead to volatility issues.”

Solomon said equity markets are not in bubble territory and the financial system is in “better shape” than a decade ago. While corporate balance sheets are in “pretty good shape,” people need to focus on the impact of negative interest rates, he said.

Ultra-loose policies by the European Central Bank and the Bank of Japan, which adopted negative rates in January, have drawn warnings from financial-industry leaders that such moves could backfire or cause unintended consequences. The International Monetary Fund, in a paper last month, endorsed the policy given current risks to growth and inflation, saying it helps provide stimulus by supporting demand and price stability.

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