In facility agreements, maintaining a zero floor for the IBOR gives lenders assurance that their transactions will at least not be punishing. But how do lenders and borrowers respond when interest rate swaps enter the arena, leading to the possibility of mismatches in rates payable, especially when negative interest rates are a factor?
At the beginning of 2017, the European Central Bank (ECB) confirmed that it will keep its benchmark rate unchanged at 0 percent and its deposit rate at -0.4 percent. To sustain European economies, the ECB will also continue its bond-buying program with 80 billion euros (US$85 billion) per month until the end of March.
Real estate investment trusts, which pool resources to invest in rental-income properties, have led as the top-performing asset class and been the ideal response to low interest rates. Recently the GICS recognized this success by introducing a new equity market sector category for real estate companies, guaranteed to attract investors.
Earlier this year, the European Central Bank (ECB) decided to cut its deposit rate to -0.4 percent and its benchmark refinancing rate to zero.
Just a few years ago, the idea of negative interest rates was considered by many to be no more than an academic curiosity. After all, why would anyone pay for the privilege of lending money?