By DANNY HAKIM and PETER EAVIS
FEB. 27, 2015
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Eva Christiansen, left, an entrepreneur, was stunned to learn about negative interest. Ida Mottelson, a student, received a notice from her bank saying it would start charging her a percentage to hold her money. Credit Sofie Amalie Klougart for The New York Times
HVIDOVRE, Denmark — At first, Eva Christiansen barely noticed the number. Her bank called to say that Ms. Christiansen, a 36-year-old entrepreneur here, had been approved for a small-business loan. She whooped. She danced. A friend took pictures.
“I think I was so happy I got the loan, I didn’t hear everything he said,” she recalled.
And then she was told again about her interest rate. It was -0.0172 percent — less than zero. While there would be fees to pay, the bank would also pay interest to her. It was just a little over $1 a month, but still.
These are strange times for European borrowers, as if a wormhole has opened up to a parallel universe where the usual rules of financial gravity are suspended. Investors lent Germany nearly $4 billion this week, knowing they would not be fully repaid. Bonds issued by the Swiss candy maker Nestlé recently traded in the market for more than they will ever be worth.
Such topsy-turvy deals reflect the dark outlook for the region’s economy, as policy makers do whatever they can to revive growth, even taking interest rates below zero to encourage borrowing (and spending). In this environment, the simplest of banking tasks have become a curiosity.
Consumer loans and mortgages with interest rates that are outright negative remain rare, and Ms. Christiansen appears to be one of the few who actually received one while banks mull how to proceed. Some other Danes are getting charged to park their money in their bank accounts.
Such financial episodes are taking place all across Europe.
To breathe life into Europe’s economy and stoke inflation, policy makers recently resorted to a drastic measure tried by some other central banks. The European Central Bank, which dictates policy in the 19-member eurozone, announced a plan that involves printing money to buy hundreds of billions of euros of government bonds.
Just the anticipation of the program prompted bond prices to plunge and the euro to drop in value. Other countries that do not use the euro were then forced to take defensive countermeasures to keep a lid on the value of their currencies, encourage lending and bolster growth.
Switzerland, for instance, jettisoned its currency’s peg to the euro, shocking markets, and cut interest rates further below zero. Denmark’s central bank has reduced rates four times in a month, to minus 0.75 percent. Sweden followed suit earlier this month.
The most profound changes are taking place in Europe’s bond market, which has been turned into something of a charity, at least for certain borrowers. The latest example came on Wednesday, when Germany issued a five-year bond worth nearly $4 billion, with a negative interest rate. Investors were essentially agreeing to be paid back slightly less money than they lent.
Bonds issued by Switzerland, the Netherlands, France, Belgium, Finland and even fiscally challenged Italy also have negative yields. Right now, roughly $1.75 trillion in bonds issued by countries in the eurozone are trading with negative yields, which is equivalent to more than a quarter of the total government bonds, according to an analysis by ABN Amro.
One reason investors are willing to tolerate such yields is the relative safety of the bonds, in a weak economy. Traders are also betting that the prices of the bonds will keep going up.
Even some corporate bonds, which are generally deemed less creditworthy than government bonds, are falling into the negative territory, including some issued by Nestlé and Novartis, a Swiss pharmaceutical company. While they did not initially have negative yields, investors bid up their prices after they were issued.
“This is obviously a once-in-a-lifetime and once-in-history phenomenon,” said Heather L. Loomis, a managing director at JPMorgan Private Bank, who specializes in bonds, “and it is hard to make sense of it.”
It can be especially hard for people who are not bankers. Ms. Christiansen, a sex therapist, took out a loan to finance a website called LoveShack that is part matchmaking site, part social network.
For her, the full novelty of her loan didn’t sink in until a spokeswoman for the bank called her back.
“She said, ‘Hi, Eva, they have contacted us from TV 2’ — it’s a big station in Denmark, one of the biggest — ‘and they would like to talk to you because of this loan,’” Ms. Christiansen said. “Then I was really like, ‘O.K., this is big.’”
She said she was generally aware of what the Danish central bank was doing, but fuzzy on the specifics and had not paid close attention to the issue until she realized she might be asked about it in front of a camera.
“When I was contacted by the television, I was like, ‘O.K., I need to know something,’” she said, laughing, during an interview at her office, where two distant windmills were visible outside the windows.
“So I actually called my bank adviser and said, ‘Can we please have a meeting?’ Because all these financial terms, I’m not used to them,” she said. “If I talk about something, I’d like to know something about it.”
Some other Danes are facing a related, if somewhat opposite, issue.
Last month, Ida Mottelson, a 27-year-old student, received an email from her bank telling her that it would start charging her one-half of 1 percent to hold her money.
“At first I thought I had misunderstood this, but I hadn’t,” she said.
Ms. Mottelson is studying for a master’s degree in health sciences, and lives in Odense, a city about 100 miles west of Copenhagen. She said she had been following the news about the central bank, but called her own bank just to make sure she was reading the email correctly.
“I asked him super-naïvely, ‘Can you explain this to me?’ And he tried, but I got the feeling he was like, come on, just move the money and you’ll be fine.”
She does plan to move her money to another bank. And there are signs that such practices are spreading to the United States. This week, JPMorgan Chase said it would start charging some institutional clients to hold their money, because of a combination of new regulations and low interest rates.
Economists are now pondering some of the odd things that might occur if interest rates stay negative for a long time.
Companies and individuals may start to hoard cash outside of ordinary banks if the banks start to effectively charge substantial sums to hold deposits. Large savers, for instance, may choose to put their money in special institutions that do little more than warehouse their cash.
“There is some negative interest rate at which it would become profitable to stockpile cash,” said James McAndrews, an economist at the Federal Reserve Bank of New York. He said that economists had speculated that such cash hoarding might begin once interest rates were around minus 0.5 percent.
For most people not poring over the financial pages, it can all seem a bit strange.
“I’m not an expert,” Ms. Mottelson said, “but to me it sounds so weird that you have to pay to have your account at a bank.”
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