Germany for First Time Sells 30-Year Bonds Offering Negative Yields • Hacker News Board

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

#71

Post by overcast » Wed, Aug 21, 2019, 6:08 PM UTC

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.

Continue investing passively through your 401k, Roth, and HSA. But start spending less, and sock away that extra cash into high yield bank accounts. That way you're investing for your future, while covering any emergency needs in case of job loss. I've been working my way up to a 6-9 month buffer for the last year.

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

#72

Post by dharmab » Wed, Aug 21, 2019, 6:08 PM UTC

SilasX wrote: post #54

dcolkitt wrote: post #30

Earlier quoted context omitted.

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…

There's no electronic cash account they can put up? If not, why not, and why can't we enable something like that so people aren't forced to buy bonds in order to hold cash?

An account that large would require insurance, management and security/auditing. Stuff you don't need with bonds since the government provides those.

I'm sure if government bonds were negative for a long enough time an alternative product would appear.

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

#73

Post by satiani » Wed, Aug 21, 2019, 6:09 PM UTC

yasp wrote: post #22

If central banks weren't setting the price of credit by fiat, what would a "market" risk free rate be? Have any economists tried to answer this question? Edit: not sure why I'm being downvoted for this...?

I think issuing fiat money and setting price of credit by fiat are two faces of the same coin. I think the way real interest rates behaved under the "Gold Standard" would be close to an answer to your question.

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

#74

Post by dmoy » Wed, Aug 21, 2019, 6:09 PM UTC

SilasX wrote: post #54

dcolkitt wrote: post #30

Earlier quoted context omitted.

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…

There's no electronic cash account they can put up? If not, why not, and why can't we enable something like that so people aren't forced to buy bonds in order to hold cash?

Deposit guarantee in Germany is only like 100k Euro. This is for institutions buying tens or hundreds of millions of Euro.

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

#75

Post by tdhoot » Wed, Aug 21, 2019, 6:09 PM UTC

TheSoftwareGuy wrote: post #53

dcolkitt wrote: post #30

Earlier quoted context omitted.

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…

Why would a derivatives exchange not accept cash? what are people buying those derivatives with? Furthermore, how could any bond (or anything at all for that matter) be less risky than cash? the market value of a bond may change over time but $1 will always be worth $1. Inflation may change the purchasing power of that dollar but then the exact same mechanism will effect the bonds as well.

I think the answer to both your questions is because there are costs to securely storing cash. That also makes cash risky compared to bonds, where you are not responsible for the security.

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

#76

Post by ryanobjc » Wed, Aug 21, 2019, 6:09 PM UTC

0xffff2 wrote: post #14

andreilys wrote: post #6

Earlier quoted context omitted.

From what I understand it’s moreso for institutional investors that have lots of capital they need to park somewhere. Making the bet that the gov will be around longer the bank But for retail investors who can store their money in a FDIC insured savings account it’s not clear why they would buy negative yield bonds.

So for an institutional investor, a negative yield bond is essentially a hedge against bank failure?

Also, look at it this way, if you have, let's say $5b on deposit at a bank, and you need to give it to someone else for some reason. Well transferring that money could destabilize the bank. They might refuse to let you withdraw it quickly. etc.

Bonds are easily and instantly transferable privately without causing major market loss.

This is the thing about huge finance like this, there's a gravity to money, and your intuitions from having bank accounts, money, etc, doesn't apply because entirely new problem appear you will never have. What if every time you paid a major bill at your credit union you threatened the solvency of that institution?

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

#77

Post by camjw » Wed, Aug 21, 2019, 6:09 PM UTC

qubex wrote: post #32

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 t…

I think with quantitive easing this analogy isn’t really true anymore: there is a guaranteed buyer (the ECB) propping up the price of German sovereign debt, so making the yields artificially low.

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

#78

Post by Ambele » Wed, Aug 21, 2019, 6:09 PM UTC

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.

I'm reducing margin (borrowed money for investing) to zero or near-zero. I'm also building up a savings account. Some of the Democrats could very well push for a pre-election recession in order to make Trump look less re-electable.

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

#79

Post by icelancer » Wed, Aug 21, 2019, 6:09 PM UTC

overcast wrote: post #71

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.

Continue investing passively through your 401k, Roth, and HSA. But start spending less, and sock away that extra cash into high yield bank accounts. That way you're investing for your future, while covering any emergency needs in case of job loss. I've been working my way up to a 6-9 month buffer for the last year.

>> start spending less

This seems like overly simple advice but it's the best advice you can listen to if you think there is a storm coming. Cutting spending and allocating that money to cash reserves while keeping your usual investment strategy (401k / Roth IRA / etc) is the most effective thing you can do.

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

#80

Post by thorwasdfasdf » Wed, Aug 21, 2019, 6:10 PM UTC

I understand that policy makers think that low interest rates will encourage people to put their money into investments like the equities or a business by forcing people out of saving. But, have they ever considered that they may actually be achieving the opposite? Someone who just turned 65 (like aging Europe), really really needs to save in safe assets. Negative yielding bonds don't change that need! So, instead of investing in risky assets, they may simply take the negative yield and save even harder to make up for the negative yield thus reducing spending even further and hurting the economy.