Economic Commentaries: Search for yield in a low-interest rate environment

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During the years following the financial crisis 2008-2009, central banks in the United States, the euro area and the United Kingdom among others, have used low policy rates and unconventional measures to try to stimulate real economic growth and ensure financial stability in various forms. This has led to historically-low interest rates and that investors' expected return on safe assets has declined. This has caused a 'search for yield' among investors, which means that they are taking greater risks than before to achieve returns. If certain investors expose themselves to risks that are so high they are unable to manage the losses when the risks are realised, financial stability may be threatened if this in turn gives rise to contagion effects between financial institutions and in the end threatens the functioning of the financial system. This Economic Commentary aims to describe the concept of search for yield and the possible factors behind it, as well as providing examples of it today and what problems it could lead to. The Commentary is referred to in the present Financial Stability Report 2013:1.

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