PAPER INFO   On July 25th, 2016, the yield for bench mark 10-year US Treasury bond reached 1

PAPER INFO

On July 25th, 2016, the yield for bench mark 10-year US Treasury bond reached 1.46 %, a historical low yield for the bond. Over last two months periods, the yield for 10-year US Treasury bond has jumped to 1.69 percent (closing yield as of 9-16-2016), and this trend was clear since announcement made by Mr. Draghi, ECB President on Sep 8th. Mr. Draghi sparked a ramp up in global interest rates over last two weeks. The market believe that speculation, there might not be an extension of the bond-buying program (Quantitative Easing) beyond its current end-date of March 2017 (same with the Bank of Japan), contributes the jump in 10-year Treasury yield.   

As a way of fighting deflation and leading banks to take additional risks in search of profit Japanese Central Bank, following several of Europe’s central banks and the ECB, cut key interest rates below zero in January, 2016. Also, Even Janet Yellen, the U.S. Federal Reserve chair, said in 2015 that a change in circumstances could put negative rates “on the table” in the U.S.  The “negative interest” policy signals that traditional monetary policy options have proved ineffective.

1. Analysis of Negative Interest (bond-buying policy) (1.5 pages)

Discuss what the Negative Interest Policy (bond-buying policy) is for both ECB (European Central Bank) and JOB (Bank of Japan), respectively.  You should discuss the benefits and costs of negative Interest (bond-buying) policy for each countries, Japan and Euro Zone.  Also, in the case of Bank of Japan, what has caused it rethink the purchase of long-maturity bonds in its QE program?