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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

#41

Post by nemo44x »

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.

Not sure why this is downvoted but there's possible truth to this.

In addition, these bonds could in fact make you a lot of money in the short term if the interest rate for these bonds continue to get more negative.

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

#44

Post by kazinator »

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…

Suppose you had half a billion dollars or whatever. You could get it in cash. You can't put that under a pillow. You'd need a really secure vault to guard this cash against theft and accidental destruction (fire, flood). In the best case, nothing happens to the money, so it retains its full numeric value, but that vault costs money to rent and operate, and those costs add up to negative yield. That effective negative yield of the vault could be more negative than the negative bond, making the bond more attractive. The negative bond could be more attractive even if it costs more than the vault, because of lower risk.

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

#45

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

#46

Post by snowwrestler »

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…

There are dozens of answers here that explain why institutions buy sovereign debt, in general.

What those comments don't explain is why anyone would buy this particular sovereign debt.

So: why would anyone buy negative-interest-rate German bonds when U.S. Treasury bonds still have positive interest rates, and are available in much higher volumes?

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

#47

Post by qubex »

cameldrv wrote: post #20
whyaduck wrote: post #4

Earlier quoted context omitted.

It's cheaper than a bank vault and more secure than a home safe. I can't think of any other reason to buy them, though.

Can't banks just deposit the money as reserves with the ECB and earn zero? I suppose in the 30 year case maybe you're assuming that the ECB won't pay zero on reserves in the future, but how does that explain the short term rates?

The ECB’s rates are short-term; who’s to say that they won’t turn acutely negative for at least some proportion of the next three decades? These rates are “locked-in”, provided you hold the bond to maturity (and might have an upside later on).

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

#48

Post by rightbyte »

DSingularity wrote: post #9
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…

The only reason I can think of is to mitigate the downside risk of financial collapse. These are banks buying these bonds. Banks which might be worried that short term financial pressures might tempt the governments might to reach for their cash positions. I would rather hold some negative-yield bonds instead of cash in that scenario.

Why would said government not reach for the bounds or just not buy them back if they issued them?

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

#50

Post by mrfredward »

Jorge1o1 wrote: post #12
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…

Certain investment funds and pension funds have mandates that require them to buy investment grade or sovereign debt

It's quite terrifying to think that pension funds are using forecasts of healthy returns to claim they are well funded, whilst simultaneously making investments with guaranteed negative returns.
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