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Germany for First Time Sells 30-Year Bonds Offering Negative Yields

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Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#21

Post by rifung »

fourstar wrote: post #3

Those of you (US) with large stock/cash positions: what are you doing to weather the (inevitable) storm? Feels like we’re in the doom and gloom media phase. I suspect lots of people will start forgetting within the next 6 months in which the stock market will go sideways, until the next catalyst which is the US election cycle.

> Those of you (US) with large stock/cash positions: what are you doing to weather the (inevitable) storm

I follow the traditional advice of doing nothing and not trying to time the market.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#23

Post by whatshisface »

fourstar wrote: post #3

Those of you (US) with large stock/cash positions: what are you doing to weather the (inevitable) storm? Feels like we’re in the doom and gloom media phase. I suspect lots of people will start forgetting within the next 6 months in which the stock market will go sideways, until the next catalyst which is the US election cycle.

If the capital flight away from the rest of the world is bad enough, US markets could even go up during a global recession. That's the thing about the stock market, it goes up and down and you can never guess which.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#24

Post by jumbopapa »

fourstar wrote: post #3

Those of you (US) with large stock/cash positions: what are you doing to weather the (inevitable) storm? Feels like we’re in the doom and gloom media phase. I suspect lots of people will start forgetting within the next 6 months in which the stock market will go sideways, until the next catalyst which is the US election cycle.

Stay the course. Don't try to time the market. You just need to avoid the irrational decision to pull your money out of the market because you'll most likely get it wrong and be worse off.

We've had 10 years of prosperity which should have been ample time to secure an emergency fund to weather the storm.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#25

Post by freeflight »

devoply wrote: post #5
TheSoftwareGuy wrote: post #2

I feel like I still don't understand negative yields, despite really trying to. Negative yields means that I put in $X (or euro/whatever germany is using) and I later am guarenteed no more than $Y out of the exchange, where Y < X. I am literally guaranteed to lose money. I could just hold on to my money, "keep it under my mattress" and still make a better ROI than bonds with negative yields. Why would anybody buy the…

Because the interest rate will soon be less than the bonds. Negative interest rates coming down the pipe globally. Only way that I can see it getting justified.

The writing has been on the horizon for a while already [0]

[0] https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2283~2ccc0749...

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#26

Post by [deleted] »

whatshisface wrote: post #11
TheSoftwareGuy wrote: post #2

I feel like I still don't understand negative yields, despite really trying to. Negative yields means that I put in $X (or euro/whatever germany is using) and I later am guarenteed no more than $Y out of the exchange, where Y < X. I am literally guaranteed to lose money. I could just hold on to my money, "keep it under my mattress" and still make a better ROI than bonds with negative yields. Why would anybody buy the…

If you take out a bunch of cash you have to store it. If you move it to an international market you suffer currency risk. If you think that the Euro is going to go up like crazy (if you forecast deflation) and you also think that every other European government has a pretty bad default risk, then you'll happily accept negative yields. Don't forget that it costs money to guard a warehouse full of cash.

[deleted]

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#27

Post by gzu »

I’m starting to entertain the idea of a massive bubble in bonds. Is inflation really never going to show again? I can’t understand why anyone would want to hold a fiat currency for 30 years for no return.

Is it due to portfolio theory where the assumption is stocks and bonds yields have inverse correlation and the way to manage risk is to have a correct ratio? Due to global QE there is too much money floating without enough to invest.

What’s the alternative to equities and/or bonds

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#28

Post by mooreds »

my_username_is_ wrote: post #8
fourstar wrote: post #3

Those of you (US) with large stock/cash positions: what are you doing to weather the (inevitable) storm? Feels like we’re in the doom and gloom media phase. I suspect lots of people will start forgetting within the next 6 months in which the stock market will go sideways, until the next catalyst which is the US election cycle.

>what are you doing to weather the (inevitable) storm? Stay invested in equities. Keep some cash on hand as an emergency fund in case you lose your job, but just don't sell your stocks when the market is down. Stay diversified and stay in the market.

> Stay diversified and stay in the market.

Agree 100%. Always worth noting that you should have an asset allocation based on your risk profile. If you need the money to pay for your kids college and it is less than 5 years away, don't have it in stocks!

Beyond that, equity allocation makes sense. You want to walk the line between not being able to sleep at night because the market is cratering and not being able to sleep at night in 30 years because you don't have enough money saved to retire the way you want to.

Disclaimer: I like this stuff, but I am not a financial advisor.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#29

Post by astura »

fourstar wrote: post #3

Those of you (US) with large stock/cash positions: what are you doing to weather the (inevitable) storm? Feels like we’re in the doom and gloom media phase. I suspect lots of people will start forgetting within the next 6 months in which the stock market will go sideways, until the next catalyst which is the US election cycle.

A cash emergency fund is there to help you weather financial storms, that's its sole purpose.

I have a six figure US stock position and I'm not going to change anything I do as long as I remain employed. Save for retirement/long term in the stock market, save for big ticket items in cash (I have a new car fund, for example). If I lose my job I'll have to stop contributions until I get another job. If I remain unemployed longer term I'd have to tighten my belt on frivolous purchases.

Re: Germany for First Time Sells 30-Year Bonds Offering Negative Yields

#30

Post by dcolkitt »

TheSoftwareGuy wrote: post #2

I feel like I still don't understand negative yields, despite really trying to. Negative yields means that I put in $X (or euro/whatever germany is using) and I later am guarenteed no more than $Y out of the exchange, where Y < X. I am literally guaranteed to lose money. I could just hold on to my money, "keep it under my mattress" and still make a better ROI than bonds with negative yields. Why would anybody buy the…

A lot of financial transactions and central clearinghouses require participants to post collateral. For example if an insurance company enters into an interest rate swap with a bank, both sides will have to post some percent of the contract's notional value in escrow. This protects both sides from counterparty risk (i.e. what if the insurance company goes out of business and can't pay its side of the swap).

The collateral needs to take the form of low-risk, liquid securities. Usually government bonds. Bringing a big bag full of cash to a derivatives exchange is not accepted. If you're a big financial institution, you have no choice but to buy government bonds. Even if they're negative yielding.

Since 2008, there's been a massive increase in financial regulations. Policy-makers have desperately pushed to make banks and other financial institutions less risky. That mostly means much higher capital requirements and more central clearing. In turn that means the demand for holding high-quality government has exploded.

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