Where Can Investors Hide From Punishing Negative Rates?

By Tatiana Darie

With volatile global financial markets, and more central banks turning to negative interest rates, it can be hard to think of a reliable place for your money these days. Economic weakness around the globe has weighed on U.S. growth, but Federal Reserve officials have repeatedly said that pushing interest rates below zero here is still premature. Chair Janet Yellen said the central bank is re-examining negative rates as a policy tool if the economy stalls. Despite the naysayers, cash is still king. A Bank of America Merrill Lynch fund-manager survey from earlier this month showed that global investors are sitting on the highest levels of cash since November 2001. Money-market funds have been a parking spot for most of that cash, but things could get tricky if rates move into negative territory in the U.S. There’s risk that some of these funds could refuse to accept additional investment, or “ultimately, as we see in Japan, they have to close,”  said Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc. About 11 money-market funds in Japan stopped taking in new investments as the industry grapples with sub-zero rates. The Japanese would also know more about storing cash under the mattress. After the country’s 2011 earthquake, tsunami and nuclear disaster, the national police agency recovered thousands of safes containing approximately $30 million in cold, hard cash.