Market Insider: Billionaire Jeff Gundlach warns the US government's borrowing binge could lead to 'fatal' negative interest rates

May 07, 2020

Article by Shalini Nagarajan in Market Insider

Billionaire "bond king" Jeff Gundlach warned that the US government's borrowing binge could push interest rates below zero and cause immense economic damage in a tweet on Wednesday.

"These Trillions Treasury is borrowing is heavily in T-Bills," Gundlach said, referring to Treasury bills, a form of short-term government debt. "Chair Powell has stated in plain English he is opposed to negative interest rates."

"Yet the pressure to go negative on Fed Funds will build as short term borrowing explodes and dominates," he continued. "Please, no. Rates < 0 = Fatal."

In other words, the US Treasury is borrowing aggressively to fund the government's stimulus efforts in response to the coronavirus pandemic, and that could heap pressure on the Federal Reserve to lower interest rates below zero.

At the end of April, the Fed left its benchmark overnight lending rates between 0% and 0.25%, meaning further cuts would make negative rates a reality.

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