Reserve Managers With $6 Trillion in Assets Flee Negative Rates

  • Central bank reserve managers report favoring the U.S. dollar
  • Investment in Chinese renminbi rising, along with equities

Managers of $6 trillion in reserves for the world’s central banks are pulling out of jurisdictions where interest rates have turned negative and pushing into riskier assets to make up for the lost yield, according to a survey by Central Banking Publications.

The reserve managers are favoring the dollar as stronger growth drives yields higher in the U.S. relative to the euro area and Japan, where policy makers have turned to negative interest rates to spur flagging economies. The 77 reserve managers who participated reported increased investment in both equities and the Chinese yuan, while pulling back from other emerging market currencies. For a minority, higher-rated corporate bonds, covered bonds, gold and other currencies have also entered the toolkit.

Policy makers in Europe and Japan have pushed further into untested forms of monetary stimulus in an effort to boost flagging growth and inflation. Even as the Federal Reserve downgraded its forecasts for rate increases this year to two from four at its most recent meeting in March, the U.S. still stands alone among major economies as officials seek to tighten the money supply.

"The introduction of negative interest rates has had a major impact on reserve management strategies," the report said. "Reserve managers report that divergences of monetary policies between major central banks will have the most impact on their work in 2016."

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