Expert Commentary

The Deflation Signal from Denmark

In Denmark, consumers get paid to borrow money.

Just when you thought the global money markets couldn't get any weirder, news comes that some Danish mortgage rates have gone negative. What this means is that, instead of you paying interest on your mortgage, the mortgage company pays you to take out the loan.

I'm going to type that one more time.

The mortgage company PAYS YOU to take out the loan.

If you just sit back and think about that for a while, you might think that it is blatantly obvious that such a situation cannot last. However, as has been discussed previously, a world of negative interest rates can last as long as banks can borrow at a lower negative rate than they are paying.

Denmark could be a lead indicator and mean that negative mortgage rates are headed your way soon. Danish interest rates have been in negative territory for years and now the amount of negative yielding bonds in the world is growing again at an ever faster clip. The longer that negative rates last, the more that condition becomes normal. And that's the nightmare that wakes central bankers up in the middle of the night. Negative interest rates for consumers is akin to dropping money from helicopters. As an aside, how's that going to work in a cashless society? And the thing the central bankers fear the most is that people scoop up that money and, rather than spend it, they hoard it.

So I guess the Danish property market is going to be the canary in the coal mine. We'll soon know whether paying people to spend money is working, or not.

CIBOR 1-Month Copenhagen Interbank Offered Rate