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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

#181

Post by arcticbull »

SilasX wrote: post #135
chimeracoder wrote: post #127

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. 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…

Your job as part of social contract of living in a market-based economy is to allocate capital in the most productive way possible to maximize efficiency of the whole. What this means, is that if you believe no ventures are valuable, you allocate your capital in cash. If you believe ventures will outperform cash, you invest in ventures. So you're "forced" in the same way you're "forced" not to be homeless, have a job, and not hit people. It's a way of life.

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

#182

Post by romaaeterna »

pergadad wrote: post #124
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…

Yeah I don't get the impression that you know too well what you are talking about if you don't know the difference between the EU and the Eurozone. Even if the euro were to break up/be abolished and resolve back to smaller currencies there would be a conversion key. The chance that the renmenbi, GBP, yen or even the dollar will have major issues look a lot more likely in the current climate - the renmenbi is still st…

Eurozone is a horrible term to use here, as some nations are pegged to the Euro or have adopted it with no issuing rights or have promised to adopt it. We are talking about specifically about EU governments with partial issuing rights that sell Euro-denominated debt. Like Germany.

One risk (of many different kinds of financial risk) with buying debt denominated in Euros from EU governments is that if such a nation is economically worse off than the others nations that also have Euro issuing rights at the time of bond maturity, then the chance of default goes up substantially. As happened quite recently with Greece.

This is not a type of risk faced with nations with their own sovereign currencies. Default is still possible, but devaluation is a safety valve.

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

#183

Post by hogFeast »

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…

No. The deal with bonds is that they have just been a way better risk-adjusted investment than stocks. An optimal portfolio still owns stocks but the point of all these approaches (risk-parity, much of the hedge fund industry pre-2008) was just owning levered govt bonds...that was it. Correlation is a minor part of that story (although it is very important).

And this effect isn't driving the price (imo). What is driving this is risk aversion, central banks, and regulatory requirements to hold risk-free securities (most investors aren't sophisticated enough to be doing portfolio math). Also, it is no coincidence that the worst affected countries (Germany/Japan) are those with risk-averse populations, crazy central bankers, and completely dysfunctional banking sectors.

The alternative is: property, commodities, private business, etc. But remember, the financial world has gone crazy...but the rest of the world is just going on as normal. This is part of the problem: central bankers believed they were geniuses and could control the real economy by fiat...well, they can't. Their world will go down in flames but everything else will likely continue as normal. Investing is not about risk-free rates or volatility/beta-adjusted portfolios, it is about providing capital to business for growth. These opportunities still exist, the financial world of central banks is (these days) unrelated to this.

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

#184

Post by arcticbull »

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…

Currency is mildly decoupled from purchasing power.

Here's how you look at it. You give me $20K today, and I promise to give you $19K back in 30 years. The question is two-fold.

(1) What else would you do with that money, that would offer you a better return, factoring all externalities. Holding cash isn't free once you account for risks like getting robbed holding bills your house burns down, you get fake bills, and potentially-negative interest rates at a bank. If you see the market going down you're not going to put it there either.

(2) How much will $20K today dollars buy you as compared to $19K future dollars? If you're betting on deflation, then that $19K future dollars may buy you a house where $20K today dollars may buy you a car.

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

#185

Post by TheHegemon »

nostromo wrote: post #43
sunseb wrote: post #38

Do you think it's a good idea to put some savings in gold?

As part of a portfolio you hold for decades? Sure. Otherwise? No. https://en.wikipedia.org/wiki/Modern_portfolio_theory

No, gold has not outperformed even cash in the last 30 years.

It is only worth it if you can time it precisely: https://www.macrotrends.net/1333/historical-gold-prices-100-...

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

#186

Post by logicallee »

apo wrote: post #155

For those wondering why anyone would buy such a thing, consider: - Many financial institutions are required to hold a certain percent of portfolio in safe assets. German bunds are among the safest in the world. - A holder of a bond earns a capital gain (bond goes up in price) when interest rates fall. In that sense, zero is no limit at all because there can always be a buyer willing to accept an even lower (more nega…

>- Many financial institutions are required to hold a certain percent of portfolio in safe assets. German bunds are among the safest in the world.

Can you explain how this can possibly beat cash? If I say to you "I'll let you pay me ten cents to hold onto your $100 bill for a while, and give you a paper showing the obligation to repay your $100" (the meaning of a negative yield bond), how can the offer to let you pay ten cents to let me hold your $100 possibly be less risky than just holding the $100?

Why would a bond with a negative yield ever be a safer asset than just holding the cash?

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

#187

Post by y4mi »

rags2riches wrote: post #166
SilasX wrote: post #108

Earlier quoted context omitted.

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…

Money was debt. It's how it got invented after all.

It's not so clear cut anymore. Most currencies aren't backed by anything anymore nor are they tied to any yearly returns. They've become arbitrary numbers manipulated by central banks to control the economy.

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

#188

Post by blackflame7000 »

rags2riches wrote: post #166
SilasX wrote: post #108

Earlier quoted context omitted.

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…

You would have to back the money with something physical such as the Gold Standard. An Oz of gold today will still be an Oz of gold tomorrow. Furthermore, the rarity of gold makes the amount in circulation relatively constant.

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

#189

Post by rags2riches »

arcticbull wrote: post #184
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…

Currency is mildly decoupled from purchasing power. Here's how you look at it. You give me $20K today, and I promise to give you $19K back in 30 years. The question is two-fold. (1) What else would you do with that money, that would offer you a better return, factoring all externalities. Holding cash isn't free once you account for risks like getting robbed holding bills your house burns down, you get fake bills, and…

(3) what will the best offer to hold $20K be tomorrow? If it's even worse, I can sell my $19K promise and make a profit! (Falling yields means raising prices.)

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

#190

Post by [deleted] »

logicallee wrote: post #186
apo wrote: post #155

For those wondering why anyone would buy such a thing, consider: - Many financial institutions are required to hold a certain percent of portfolio in safe assets. German bunds are among the safest in the world. - A holder of a bond earns a capital gain (bond goes up in price) when interest rates fall. In that sense, zero is no limit at all because there can always be a buyer willing to accept an even lower (more nega…

>- Many financial institutions are required to hold a certain percent of portfolio in safe assets. German bunds are among the safest in the world. Can you explain how this can possibly beat cash? If I say to you "I'll let you pay me ten cents to hold onto your $100 bill for a while, and give you a paper showing the obligation to repay your $100" (the meaning of a negative yield bond), how can the offer to let you pay…

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