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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

#131

Post by madcaptenor »

cVwEq wrote: post #103
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…

One way to make money is if you sell the bond at a higher price later to another buyer. From the article: “Why are people buying at negative yields? It is mainly in expectation that you’re going to be able to sell to someone at a higher price later on,” said Andrea Iannelli, investment director, fixed income at Fidelity International. “Whatever the yield you have to assume you’re going to make more on the capital gai…

Or just paying for a house, thinking it will appreciate. (The "yield" of a house is negative, because it costs money to keep the thing in the same condition you bought it in, as anyone who owns a house knows.)

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

#132

Post by lixtra »

gzu wrote: post #27

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…

I think ECB is doing a terrible job in reaching their stated goal of 2% inflation.

I think actual helicopter money distributed equally to each EU citizen (a few hundred EUR) would have been much better than buying state bonds. Most people would have spent the money immediately and thus caused the desired inflation. As it is now the states benefit from QE in the first step, used in questionable projects in the second step and then it doesn’t tickle down but just inflates various financial asset bubbles. It’s neither fair nor effective.

Of course you need some thought, how to actually distribute the money without losing to much on bureaucracy, but it is possible.

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

#133

Post by lixtra »

jchrisa wrote: post #130

Slightly OT but I’ve been trying to google this for a while and there are people reading this who will know where I can look: If a government (pretend US if it helps) stopped collecting taxes, and instead funded the budget by printing money every year, who would be the winners and losers compared to the current system? Where can I go to learn more?

Look at the discussion around MMT https://en.m.wikipedia.org/wiki/Modern_Monetary_Theory

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

#134

Post by gnopgnip »

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 negative rate bond or CD is not fundamentally different from a normal one, you pay a set amount now and in the future you get a guaranteed payout at a future date. Except that instead of making money on the interest, you pay a little. The banks offer these products because they still make money on the fees, and on the arbitrage from loaning out the invested funds at a higher rate(or by doing nothing with a negative rate), or by bundling and selling the securities. This can still be a good option for buyers compared to investing in junk bonds or CDs that pay higher rates, or in stocks and mutual funds because what is important is the risk adjusted return and not just the yield. There are costs/risks associated with keeping a pile of cash in a vault or stuffed in a mattress, or sitting in another type of account that is not insured. If you expect interest rates to decrease even more buying a bond or CD can make money because you can sell it for more in the future, even with a negative rate. The big one is that in certain cases there are requirements to purchase CDs or treasury bonds by law, or as part of a contract, or by the governing docs of a company instead of just holding "cash".

For an individual, you would be unlikely to purchase these because the cost/risk of holding cash in a bank account is minimal and some type of insurance likely covers it, and most individuals want higher returns and would rather invest in index or mutual funds than CDs even if they had positive returns. And if you think that interest rates will drop in the future and you can sell the bond for more, you are still more likely to buy higher yield bonds with higher risk.

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

#135

Post by SilasX »

chimeracoder wrote: post #127
SilasX wrote: post #121

Earlier quoted context omitted.

Non-central fallacy: Yes, it technically meets one definition of "liability", and is therefore debt; it is not "being invested in a venture" in the sense of this discussion.

> Non-central fallacy: Yes, it technically meets one definition of "liability", and is therefore debt; it is not "being invested in a venture" in the sense of this discussion. Except it is being invested. That's a major part of the role that the government plays when interacting with the macroeconomy.

Then let me try phrasing it a third way:

So people should be forced to invest their money beyond the extent to which holding that money inherently counts as an investment, even if they don't think any of the ventures that they directly invest in are worthwhile?

The fact that government "is debt backed by full faith and credit etc etc etc" does not answer the substance of the question I was actually asking, and which should have been clear from the context I was asking.

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

#136

Post by diego »

SilasX wrote: post #110
tdhoot wrote: post #75

Earlier quoted context omitted.

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.

Why is everyone responding to the question under the same misinterpretation, that it means "cash" as in "physical banknotes" rather than "electronic Euros"? I know the principle of charity is hard sometimes, but come on.

Why would you expect that a bank would hold your electronic euros for less money than a negative yield bond would cost?

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

#137

Post by kgwgk »

SilasX wrote: post #125
secabeen wrote: post #122

Earlier quoted context omitted.

Because a bank can go under, and you can lose your money in excess of the insured amount.

Not if it's a bank that specifically caters to this crowd and doesn't take any of the normal risks associated with lending.

They would have two options:

A) keep the euro notes in their vault, which only works if you deposit paper bills in the first place

B) keep electronic deposits in the ECB and pay interests to do so

In either case if they give back the money to the clients when they ask for it how do you expect them to cover their operating costs (plus the interest they are charged by the central bank in case b)?

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

#138

Post by [deleted] »

SilasX wrote: post #125
secabeen wrote: post #122

Earlier quoted context omitted.

Because a bank can go under, and you can lose your money in excess of the insured amount.

Not if it's a bank that specifically caters to this crowd and doesn't take any of the normal risks associated with lending.

[deleted]

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

#139

Post by unreal37 »

seandhi wrote: post #99
llcoolv wrote: post #91

Earlier quoted context omitted.

Not only - AFAIR the Colombian Steve Jobs had problems with humidity too - 2.1 billion 80s' USD lost to flooding and rotting is what I would call real liquidity :D And also rats I think.

It’s extremely insulting to refer to Escobar as the Colombian Steve Jobs, if that is the connection you are making.

It's funny though.

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

#140

Post by ThrustVectoring »

nostromo wrote: post #35

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…

US and EU bonds are denominated in different currencies, and the cost to hedge the currency risk with a forward contract eliminates the difference in interest rates. In other words, the effect of the US raising interest rates isn't just to put pressure on EU interest rates, but also to put pressure on the expected future exchange rate.
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