Along with the rest of the world, bond guru Bill Gross has watched as negative interest rates unfurled in Europe and then took root in Japan.
He's not keen on their land grab, and in his latest monthly investment outlook, he compares their migration to Japan with the spread of the dangerous Zika virus.
Negative interest rates -- in which banks are charged interest to keep their money parked -- are an "enigma" to almost every investor on the planet, says Gross, who's scratching his head over the phenomenon like a lot of people.
"Why would someone lend money to a borrower with the certainty of getting less money back at a future date?" Gross questions.
He continues: "Several years ago even the most Einsteinian-like economists would not have imagined such a state but now it seems an everyday occurrence, as central banks plumb deeper and deeper depths like drilling rigs expecting to strike oil, if only yields could be lowered another 10, 20, 50 basis points."
Negative interest rates pose a threat to banks, says Gross, since their profit margin is pressured when yield curves flatten and their net interest rate margin (the difference between what a bank makes on lending and pays on deposits) narrows.
If you ask Gross, battered bank stocks look more like they're "permanently damaged" by stricter regulations, massive write-offs and tighter margins and less like a "screaming sector ready to be bought."
Negative interest rates are also a menace to people who are trying to save or invest money for college, retirement or medical expenses, says Gross. It doesn't matter if you plunk your money in a bank or a Treasury bond, the returns are "inadequate" compared to what you could historically expect and what their risk level is.
Gross, who manages the Janus Global Unconstrained Bond Fund, has long complained about the monetary policy set by central banks around the world and their impact on yield.
Central banks have resorted to negative interest rates in an attempt to encourage banks to do more lending, which will hopefully spur economic growth. The Bank of Japan was the latest to join the bandwagon when it pushed interest rates below zero in January.
