The long period from 2009 to 2016 was characterized by low rates of inflation. The purchasing power of an investor's savings was not significantly undermined. Since 2016 this story has changed.
Eurozone inflation is running close to 2%. This means investors holding cash balances are losing about 2% of their capital's value each year. If this rate were to hold, in 10 years cash deposits will have lost approximately 18 % of their purchasing value.
In the meantime the Swiss National Bank charges a negative interest rate of -0.75% on cash accounts while the European Central Bank demands -0.4%. The reality is that clients of private banks are paying a "penalty" for holding cash.
This environment naturally stimulates investment, with many investors moving their money to investment grade corporate bonds to avoid the penalty. As a result, the rate of return on investment grade bonds has fallen to 0.76%, representing insufficient compensation against inflation. A similar pattern is evident in high yield bonds and credit. Investors are motivated to look for alternative solutions.
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