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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

#31

Post by romaaeterna »

romaaeterna wrote: post #10
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 it's a large amount of money, you might decide to put it in a bank so that you don't have to worry about it being stolen. Once it is in a bank now you have to play the game of trying to figure out the comparative risk between the bank not being around any more 30 years from now, versus the chance that the German government will have forgotten how to operate the money printing presses. Of course, since this is the…

Do any of the people downvoting recall what happened recently to all those Greek Euro-denominated government bonds?

Of course, that could never ever ever happen in Germany? Not even in 30 years? Let's hear an explanation.

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

#32

Post by qubex »

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…

This means that lending money to the German federal government is considered less risky than just “holding onto your money”. You might think of money as a physical asset (cash), but really it’s far more varied, and for amounts that exceed insured deposit thresholds, you are not protected by the risk of failure (or “bail-in”) of a banking institution. Besides, as others have pointed out, these make little sense from the point of view of an individual investor and are going to be parts of more integrated risk-calibrated portfolios of assets.

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

#33

Post by miohtama »

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 put a lot of money in a bank then there is a counterparty risk the bank defaulting or you getting a haircut. Money in a bank is no longer "yours".

Some hardcore asset management schemes store physical US bills in a high security storage. You will pay % negative yield on yearly storage cost, but cash is truly yours and you can withdraw any day.

Also in the EU, with some fintech startups, you can now open a bank account which comes with a IBAN number from a central bank of Lithuania - essentially your money is stored within European Central Bank system. You will have negative ECB interest and pay some extra, but there is no counterparty risk unless the whole European banking system collapses.

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

#34

Post by [deleted] »

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…

[deleted]

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

#35

Post by nostromo »

This is the real reason the US yield curve looks the way it does.

All other developed countries are selling negative or near zero government bonds. This has lead to huge international demand for US 30 year treasuries.

https://tradingeconomics.com/bonds

US treasuries are giving a greater yield than Italy or Spain for reference. Of course there will be huge demand.

Central banks are no longer islands. They are part of the global economy and a part of a market just like any other. The US acting alone to raise interest rates won't work like it did in previous cycles.

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

#36

Post by eikenberry »

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.

The market goes up and down. You invest for the long term and ignore the volatility.

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

#37

Post by WhompingWindows »

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.

Same as always: improve skill-set to 1) live more cost-efficiently 2) provide more value at work. 1) definitely leads to better savings rate over time, 2) probably does.

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

#39

Post by f00zz »

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.

Not in the US nor have a large $$$ position, but as someone who dabbles a bit in options trading on the side, I've got to say: this volatility is great.

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

#40

Post by pergadad »

dcolkitt wrote: post #30
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 colla…

In cas that's not obvious I just want to add that the collateral allows you to only keep a fraction of what you're investing in actual collateral. The exact numbers depend on context, but imagine you buy/hold collateral and for that can loan/borrow five or ten or twenty times as much.
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