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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

#161

Post by novaRom »

kazinator wrote: post #44
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…

How then a bond is different? It is also either a physical thing or a record in DB; both cases require protection and security.

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

#162

Post by JumpCrisscross »

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…

> I still don't understand negative yields

Safe assets sell a service: they’re a safe place to put your money. For this service, you pay a fee. There are other places to put your money, from cash to money market accounts to listed equities, but they aren’t safe. (They compensate for this unsafeness by promising you a return.)

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

#163

Post by JumpCrisscross »

jonathankoren wrote: post #104
dmoy wrote: post #60

Earlier quoted context omitted.

Cash has risks: * risk of physical destruction * risk of physical theft * risk of forgery etc etc There's some nonzero cost to accept, handle, vet, store, etc for cash. That's not even including if there are extra reporting laws or other for large amounts of cash, which just adds to the overhead.

These are all concerns with paper, not “cash” as it’s commonly considered in finance. Have $xx,xxx in a checking account at a national bank. It’s a database entry, not a pallet of pennies. Furthermore, with fractional reserve banking, I sincerely doubt if there’s enough coins and bills in the country to account for the total “cash” in all the accounts, let alone all the assets. Similarly, everyone involved in these t…

> Have $xx,xxx in a checking account at a national bank

At the scales of financial infrastructure, bank deposits are not cash. They are debt issued by banks. The point of collateral is to give a bank’s word weight.

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

#164

Post by athrowaway3z »

SilasX wrote: post #108
dageshi wrote: post #96

Earlier quoted context omitted.

It would be counter productive to society. Put money in a bank, the bank lends it out, the money serves society buy financing a new business or perhaps consumption but either way it is doing something. Lend it to the government in the form of bonds and they'll spend it on something. If it just goes into the cash account you're describing, it does nothing but exist, in the event of recessions this would be severely da…

So people should be forced to invest their money even if they don't think any of the ventures are worthwhile? And physical cash shouldn't exist either?

Physical cash should exist.

But your first question is much more interesting in what it seems to imply.

If i understand it correctly, the converse would be: entities are free to not invest their money when there are no worthwhile ventures.

This sounds all well and good on an individual level. But by what logic or mechanism can the ~200 countries that exist have the ability to 'hold' money and not 'invest' it?

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

#165

Post by mdemare »

romaaeterna wrote: post #31
romaaeterna wrote: post #10

Earlier quoted context omitted.

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.

It could, but there still isn’t anything safer than German bonds.

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

#166

Post by rags2riches »

SilasX wrote: post #108
dageshi wrote: post #96

Earlier quoted context omitted.

It would be counter productive to society. Put money in a bank, the bank lends it out, the money serves society buy financing a new business or perhaps consumption but either way it is doing something. Lend it to the government in the form of bonds and they'll spend it on something. If it just goes into the cash account you're describing, it does nothing but exist, in the event of recessions this would be severely da…

So people should be forced to invest their money even if they don't think any of the ventures are worthwhile? And physical cash shouldn't exist either?

If you describe negative interest rates as "forcing people to invest their money", how would you describe deflation?

Money is debt. You hold something now and expect somebody else to give you something of value for it in the future. But the future is always uncertain. You may lose out on the deal by holding on to your money. But you seem to be demanding that somebody somehow should guarantee that people never do lose by holding on, no matter what. Who would that somebody be? How could that even work?

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

#167

Post by antaviana »

DubiousPusher wrote: post #51
snowwrestler wrote: post #46

Earlier quoted context omitted.

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?

Diversification. Spreading your money across many governments which are unlikely to default is better than putting it all in one.

With diversification you decrease the risk of losing everything and increase the risk of losing something.

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

#168

Post by novaRom »

rabidrat wrote: post #16
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…

Individual investors would probably not buy these. It's a lot harder to keep $100m under the proverbial mattress: not FDIC-insurable, literal cash requires guards, etc. And anything else you buy to store the value (gold for instance) has higher volatility and risk than these negative-interest bonds. So the theory would go, anyway.

Individual investors still can buy. For example, if I am sitting on too many dollars and expect that Euro will be significantly stronger than dollar in 30 years, I can diversify a little bit. Same applies to other currencies.

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

#169

Post by merb »

romaaeterna wrote: post #31
romaaeterna wrote: post #10

Earlier quoted context omitted.

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.

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

well anything can happen. I mean I live in germany and I can totally see that happen. our biggest industry needs a lot of breaking changes or else they will fail pretty hard. and they have less than 30 years to do so

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

#170

Post by mdemare »

hendzen wrote: post #52
snowwrestler wrote: post #46

Earlier quoted context omitted.

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?

https://en.wikipedia.org/wiki/Interest_rate_parity

Yes. The difference in interest rates implies that the EURUSD exchange rate is expected to rise (slowly) in the coming decades.
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