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20-Year Mortgages Hit Zero for First Time in Danish Rate History

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Re: 20-Year Mortgages Hit Zero for First Time in Danish Rate History

#41

Post by rolltiide »

yasp wrote: post #2

This seems like a good place to ask the question: how is it that we're seeing $15T of bonds worldwide trading with negative yields? [1] TFA suggests this is due to structural factors--institutions that are required by law to own AA/AAA bonds. Is this some deficiency in the law or corporate governance, that cash in this circumstance isn't considered a substitute for a negative-yield bond? Its net present value would b…

Its because every country & currency bloc is manipulating their currency.

Only a few of those get designated as currency manipulators for political convenience.

It is that simple.

The primary tool to manipulate the currency is by introducing additional money into the supply. The primary way to do that is to buy bonds at a premium price (where whoever previously owned the bond and sold it now has new money that didn't exist before, this trickles throughout the system diluting the value of the currency for everyone else). Pushing up the price of bonds pushes down the yield. Newly issued bonds are done at the market price and tolerance (what the market can bear). So if the prevailing rate is 0% or -0.5%, newly issued debt in the same risk range yields 0% or -0.5% too.

Re: 20-Year Mortgages Hit Zero for First Time in Danish Rate History

#42

Post by esoterica »

solotronics wrote: post #36
esoterica wrote: post #3

Earlier quoted context omitted.

There is no risk free and cost free way to hold large amounts of cash. You can deposit it at a bank, but the bank could go under. You could keep paper cash in a vault but you’d have to pay to guard and maintain the vault. There’s no actual way to just “hold cash”.

This is one of the key interesting aspects of cryptocurrency to me. Anyone with a little knowledge can generate their own private key and store/move any amount of money in it securely.

Your wallet key can be stolen, there might be an undiscovered vulnerability, in the protocol, the currency could tank in value, etc

Re: 20-Year Mortgages Hit Zero for First Time in Danish Rate History

#43

Post by gridlockd »

vonmoltke wrote: post #39
chadash wrote: post #30

Earlier quoted context omitted.

There are a few reasons: 1) Say I'm a Danish pension fund looking to park my money somewhere super safe . I can buy US government bonds that pay 1-2.5% (depending on length to maturity) and indeed many foreign investors will do this. But I still have some risk there, because what happens if the value of the dollar goes down against the Euro and now I lose 5% instead of making 2%? So I look for something denominated i…

> So they tell you, fine, we'll take your money but we're gonna charge you for the service of keeping it safe. It'll be 1% a year and now you can sleep better at night. Banks in Europe are charging people a percentage to hold their money? That's a bit of context that helps, since that is unheard of in the US. At worst they charge flat fees, and that's usually for having too little money.

> Banks in Europe are charging people a percentage to hold their money?

The European Central Bank charges banks negative interest to hold their money for them, which is a reserve requirement. Those costs may be forwarded to customers (but 1% is not a realistic figure).

Either way, you don't want to store your money at a bank beyond what is insured.

> That's a bit of context that helps, since that is unheard of in the US.

As of yet, but that might change.

Re: 20-Year Mortgages Hit Zero for First Time in Danish Rate History

#44

Post by throw0101a »

refurb wrote: post #33
throw0101a wrote: post #21

Earlier quoted context omitted.

> This seems like a good place to ask the question: how is it that we're seeing $15T of bonds worldwide trading with negative yields? [1] We've been on a 10 year run of growing economies after the Great Recession and stocks/equities have price-to-earning (P/E) ratios that are really high—as high as what they often were before other corrections and/or recessions: * https://www.macrotrends.net/2577/sp-500-pe-ratio-pric…

PE ratio has declined to 22 since that article was written. https://www.multpl.com/s-p-500-pe-ratio

2018 was quite the year:

> After closing at an all-time high on September 20, the S&P 500 entered a bear market on Christmas Eve. The technical definition is a 20% peak-to-trough drawdown, but I’m willing to give this 19.8% fall the benefit of the doubt.

* https://awealthofcommonsense.com/2018/12/the-forgotten-bear-...

The S&P 500 then hit another all-time high this year (2019), before dropping back down recently. The US/Trump sabre rattling and introducing tariffs/trade wars isn't helping with confidence either:

* https://www.nytimes.com/2019/08/07/opinion/tariff-tantrums-a...

* https://fred.stlouisfed.org/series/T10Y3M

Various other stock markets are experiencing drama as well:

* https://www.starcapital.de/en/research/stock-market-valuatio...

Re: 20-Year Mortgages Hit Zero for First Time in Danish Rate History

#45

Post by vonmoltke »

alkonaut wrote: post #29
p1esk wrote: post #18

Negative rate morgages seem pretty crazy to an American eye! :)

Zero or negative rates for consumer loans is crazy everywhere . But so is having a fixed 30year mortgage of 3-5% when the interbank rates are near zero.

Why? The bank could loan that money to the US Government for 2%-3% over that same lock-up period. What does the funds rate have to do with it?

Re: 20-Year Mortgages Hit Zero for First Time in Danish Rate History

#46

Post by dragonwriter »

gridlockd wrote: post #43
vonmoltke wrote: post #39

Earlier quoted context omitted.

> So they tell you, fine, we'll take your money but we're gonna charge you for the service of keeping it safe. It'll be 1% a year and now you can sleep better at night. Banks in Europe are charging people a percentage to hold their money? That's a bit of context that helps, since that is unheard of in the US. At worst they charge flat fees, and that's usually for having too little money.

> Banks in Europe are charging people a percentage to hold their money? The European Central Bank charges banks negative interest to hold their money for them, which is a reserve requirement. Those costs may be forwarded to customers (but 1% is not a realistic figure). Either way, you don't want to store your money at a bank beyond what is insured. > That's a bit of context that helps, since that is unheard of in the…

Now that other people have tried it out, the Fed is likely to consider negative rates as an available tool. See, e.g.:

https://www.frbsf.org/economic-research/publications/economi...

Re: 20-Year Mortgages Hit Zero for First Time in Danish Rate History

#47

Post by jobigoud »

waynecochran wrote: post #35
aantix wrote: post #14

Can you get a Danish loan to fund the purchase of a foreign (ehem U.S.) residence?

ELI5, how do banks make money if they don't charge interest?

Maybe they couple it with other services like the mortgage insurance or a life insurance or they request that your salary be credited to a checking account at their bank.

Assuming they make money, could they then go sub zero?

Re: 20-Year Mortgages Hit Zero for First Time in Danish Rate History

#48

Post by vonmoltke »

gridlockd wrote: post #43
vonmoltke wrote: post #39

Earlier quoted context omitted.

> So they tell you, fine, we'll take your money but we're gonna charge you for the service of keeping it safe. It'll be 1% a year and now you can sleep better at night. Banks in Europe are charging people a percentage to hold their money? That's a bit of context that helps, since that is unheard of in the US. At worst they charge flat fees, and that's usually for having too little money.

> Banks in Europe are charging people a percentage to hold their money? The European Central Bank charges banks negative interest to hold their money for them, which is a reserve requirement. Those costs may be forwarded to customers (but 1% is not a realistic figure). Either way, you don't want to store your money at a bank beyond what is insured. > That's a bit of context that helps, since that is unheard of in the…

> The European Central Bank charges banks negative interest to hold their money for them, which is a reserve requirement.

The ECB requires the reserve be deposited with them? There is no "vault cash" provision like the US?

Re: 20-Year Mortgages Hit Zero for First Time in Danish Rate History

#49

Post by throw0101a »

netsharc wrote: post #17
thedudeabides5 wrote: post #6

Earlier quoted context omitted.

Great question. Not sure I have an 'answer' but think it has something to do with the demand for money today vs the demand for money tomorrow. Lots of the world's money is being held in the hands of those with...a lot of money. Those people tend not to need money to spend it, and are looking for places to park it. Meaning there is a large supply of money today. Meanwhile, lots of people need money, but there are fewe…

I'll butcher this explanation, but part of (actually a lot of) the blame is governments saying they need to have a balanced budget or surplus, thus performing austerity since 2008, but making the vulnerable in society suffer (guess why the working class are a bit angry nowadays, voting in right wing populist governments and morons like, well, you know who). In an ideal world, the government would borrow money and spe…

Some folks on HN don't like Krugamn, and no one is perfect, but I think he has decent explanations and takes on many things. The idea of budget deficit versus surplus is an interesting topic over the last ten years or so:

> I would summarize the Keynesian view in terms of four points:

> 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.

> 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.

> 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down.

> 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.

* https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex...

On austerity, there's a good book that goes over its origins and history:

* https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...

Good videos of talks and videos by the author, Mark Blyth, if you do a search.

Re: 20-Year Mortgages Hit Zero for First Time in Danish Rate History

#50

Post by nihonde »

throw0101a wrote: post #21
yasp wrote: post #2

This seems like a good place to ask the question: how is it that we're seeing $15T of bonds worldwide trading with negative yields? [1] TFA suggests this is due to structural factors--institutions that are required by law to own AA/AAA bonds. Is this some deficiency in the law or corporate governance, that cash in this circumstance isn't considered a substitute for a negative-yield bond? Its net present value would b…

> This seems like a good place to ask the question: how is it that we're seeing $15T of bonds worldwide trading with negative yields? [1] We've been on a 10 year run of growing economies after the Great Recession and stocks/equities have price-to-earning (P/E) ratios that are really high—as high as what they often were before other corrections and/or recessions: * https://www.macrotrends.net/2577/sp-500-pe-ratio-pric…

Wasn’t the question about cash versus bonds—not equities versus bonds?

Honest question: What advantages do bonds with negative rates have over cash with low positive rates? Do bonds protect against inflation?

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