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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

#211

Post by dageshi »

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?

Of course physical cash should exist. There just isn't enough of it and it isn't practical for large investors.

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

#212

Post by nabla9 »

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…

Cash is universally considered the most liquid asset because it can most quickly and easily be converted into other assets.

If the amount of physical cash is huge however, say 1 billion euros, it can be less liquid than German government bonds. There is cost of moving, counting, securing it and significant delay for buying and selling. If you try to buy something for 1 billion EUR in cash, it might cost 100k EUR to do so and few days until you can buy anything.

But you are correct, there is probably a limit after wich banks start to convert some part of their assets to cash.

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

#213

Post by dmoy »

beamatronic wrote: post #176
SilasX wrote: post #125

Earlier quoted context omitted.

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

You mean like... a German bank? They will happily do what you ask. For a small fee. In the form of a negative interest rate.

And your deposit won't be insured past like 100k euro.

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

#214

Post by thorwasdfasdf »

elcomet wrote: post #84
thorwasdfasdf wrote: post #80

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…

I think that's the point isn't it? To provide extra-safe assets for people who need it.

Their objective is that people won't save the money. They want people to spend the money, the sooner the better, but that goal completely contradicts what a retiree (and aging population) needs/wants to do.

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

#215

Post by avn2109 »

AdrianB1 wrote: post #209
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…

Not counter productive to the society: as money have nothing behind and central banks can just print it, they can print or electronically grant any amount to anyone needing it. This would not affect the trust in the value of the money because there is no such value. What is $1 or 1 Euro backed by? An ounce of Moon dust?

The fundamental demand for dollars and euros is caused by the fact that every April, you need to have a bunch of them. And if you don't, eventually men with guns will take you to jail.

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

#216

Post by patrickmcnamara »

jchrisa wrote: post #206
throwaway123156 wrote: post #146

Earlier quoted context omitted.

I suppose it would lead to inflation and as long as the inflation is controlled, that's doable. Effectively, the government is being funded by all dollar holders at that point. It's a wealth tax of sorts imposed on those who hold their wealth in dollars. The idea would be that the government is being funded by the fact that $100 today, is worth only about $90 last year, and that loss in value is what's funding the go…

So maybe the poor and middle class would be better off and the rich would foot the bill?

The rich would also have the means to invest that money and not just hold cash.

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

#217

Post by DennisP »

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…

Not a safer asset, but possibly a more profitable one, since if interest rates go down even further, you can sell your bond for a capital gain. To see how the numbers look out, go to https://portfoliocharts.com/2019/05/27/high-profits-at-low-r...

Of course if interest rates go up, you have to keep the bond until it matures (earning less interest than you would with a new bond), or sell it for a capital loss. But this is always a risk with long-term bonds, and institutions still hold them.

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

#218

Post by arez »

AdrianB1 wrote: post #203
whatok wrote: post #180

Earlier quoted context omitted.

Good post that covers nearly everything. The only thing I would add to this is that the ECB's deposit rate of -0.40% is the only thing that has enabled all of this.

Actually the ability of the ECB to print money out of nothing is the main enabler.

isn't that the it's job? It hands out loans for money it doesn't have but can steer the market with the interest rates

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

#219

Post by kazinator »

novaRom wrote: post #161
kazinator wrote: post #44

Earlier quoted context omitted.

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.

A bond is a registered contract that names specific parties, whereas cash is a manifestation of value associated with whoever bears it. (There are bonds like that; bearer bonds.)

Stealing bonds would have to be an information crime; surreptitiously rewriting the identity of the investor on all copies of the contract in existence. Or something like that.

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