“It’s a glaring warning sign of deflation. We’ve never really had deflationary fears throughout such a widespread part of the world before.”—Phil Camporeale, JPMorgan Asset Management It would have seemed impossible a few years ago. How many of us would have guessed that US interest rates would be just a hair above zero?

On the other hand… it could be worse. Worse? Interest rates are even less than zero in some countries. Yes… negative interest rates.

Sweden… Switzerland… Denmark… and the European Central Bank. What do those four have in common? The yields on their short-term interest rates are all negative. The European Central Bank introduced negative interest rates last year. It has been joined by Switzerland and Denmark at -0.75% and Sweden at -0.85%.

... the universe of negative interest rates extends beyond those Nordic nations. Today, 16% of the world’s government bonds have negative yields. Yup, investors now have to pay for the privilege to loan money to governments, for example, in Germany and France.

One day we might tell our wide-eyed grandchildren that once upon a time, governments and corporations actually had to pay the lenders for the privilege of borrowing money. For the most part, individual savers don’t have to pay for the privilege of leaving money in the bank, but institutional customers—even in the US—are getting nailed. JPMorgan Chase recently announced it will charge institutional clients as much as 5.5% on deposits, and several banks are already charging corporate clients to hold eurodollar deposits. Think US Rates Are Headed Higher? Wrong!

One of the most astute central bank observers I know, Joan McCullough, says that there may not be a limit to how much QE money the ECB will spend, and she wouldn’t be surprised if the central bank took interest rates down to -5%, like the Swiss after the demise of Bretton Woods. Instead of trying to find some logic in the actions of central bankers, let’s focus on what the free-market response by banks, pension funds, and institutional investors will be.

Short-term US bond yields are barely above zero and yields on long-term bonds are near historic lows, too. The 10-year Treasury bond yield is comfortably below 2% and the yield on 30-year Treasury bonds recently hit a new all-time low at 2.44%—the lowest yields in the history of the United States. Let me repeat that: The lowest yields in the history of the United States.

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