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

#251

Post by yasp » Wed, Aug 21, 2019, 10:01 PM UTC

dredmorbius wrote: post #235

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...?

A fair question, and there's an argument that's been made (though I'm unable to recall precisely where I ran across it, possibly in a New Books in Economics podcast) that while interest rates might once have been considered exogenous (market-determined) they are now endogenous (central-bank determined). Which would mean that interest rates are (more or less) what CBs want them to be, at least within the bounds define…

Are you maybe thinking of what MMTers e.g. Warren Mosler assert? (E.g., Mosler calling for 0% interest rates, always.)

If you can think of source, please let me know. Sounds interesting.

Edit: It also sounds fallacious to me. Interest rates are central-bank determined because the central bank chooses to determine them. In the absence of a central bank controlling rates, there undoubtedly would still be interest rates. There ostensibly also still would be risk free rates. In some hypothetical parallel Earth, the Fed might instead choose to control the price of some other commodity, like oil. That doesn't mean that the price of oil would be "endogenous" and therefore that there's no market price. Just that the Fed had chosen to suppress that market price. Thus, as far as I can tell, it still makes sense to ask the question "what would be the market risk free rate?"

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

#252

Post by PunchTornado » Wed, Aug 21, 2019, 10:05 PM UTC

turbinerneiter wrote: post #246

The most fascinating thing is here is that the German government still refuses to take this basically free money to invest in infrastructure.

useful infrastructure. I see plenty of vanity projects floating around, hate to see Germany implementing some.

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

#253

Post by samsonradu » Wed, Aug 21, 2019, 10:11 PM UTC

hogFeast wrote: post #183

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 driv…

> Their world will go down in flames but everything else will likely continue as normal. > These opportunities still exist, the financial world of central banks is (these days) unrelated to this.

It's not unrelated at all. It's the central banks policies that are pushing the economy out of balance. These policies obfuscate the real risks that come with investing, like defaults and money-losing investments. Greece, a country close to default a few years ago and with a debt-to-GDP ratio of 180% in a currency it cannot print manages to have a 10Y yield of ~2%.

Not predicting any doomsday but I believe in the upcoming years EU banks will slowly push the negative interest rates down to consumers, as they have no alternative. Their business model of borrowing-short and lending-long is no longer sustainable.

Also, on the long run, these policies have the effect of shrinking the middle-class, increasing inequality and polarising societies.

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

#254

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

jedberg wrote: post #229

The best explanation I've heard for negative rates is this: Imagine you have a million dollars worth of cars. If you want to store that in a bank, you'd pay them money to do so. Why? Because the car has no value to the bank. The only thing they can do is store it in the vault, which requires security personnel, space, climate control, etc. Now instead you have a million dollars in cash. In the current environment, wh…

Thanks for your explanation, I think it helps me to understand what’s happening a little better.

But how can I reconcile what you’ve said with articles like this?:

https://www.cnbc.com/2018/03/15/bankrate-65-percent-of-ameri...

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

#255

Post by Gustomaximus » Wed, Aug 21, 2019, 10:28 PM UTC

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?

You might be looking for 'Modern Monetary Theory'

https://en.m.wikipedia.org/wiki/Modern_Monetary_Theory

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

#256

Post by samsonradu » Wed, Aug 21, 2019, 10:29 PM UTC

jedberg wrote: post #229

The best explanation I've heard for negative rates is this: Imagine you have a million dollars worth of cars. If you want to store that in a bank, you'd pay them money to do so. Why? Because the car has no value to the bank. The only thing they can do is store it in the vault, which requires security personnel, space, climate control, etc. Now instead you have a million dollars in cash. In the current environment, wh…

"It used to be a respectable thing to save money, now you're just hoarding cash!" - @Hipster_Trader

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

#257

Post by tachyonbeam » Wed, Aug 21, 2019, 10:33 PM UTC

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…

Another thing to consider: the average Joe has little or no cash savings. Rich people already are into stocks, real estate and other asset classes. There might not be much juice left to squeeze.

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

#258

Post by icelancer » Wed, Aug 21, 2019, 10:41 PM UTC

TheHegemon wrote: post #185

nostromo wrote: post #43

Earlier quoted context omitted.

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-...

>> gold has not outperformed even cash in the last 30 years.

It is specifically geared to underperform it in markets like this, so it's doing its job.

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

#259

Post by icelancer » Wed, Aug 21, 2019, 10:45 PM UTC

booleandilemma wrote: post #254

jedberg wrote: post #229

The best explanation I've heard for negative rates is this: Imagine you have a million dollars worth of cars. If you want to store that in a bank, you'd pay them money to do so. Why? Because the car has no value to the bank. The only thing they can do is store it in the vault, which requires security personnel, space, climate control, etc. Now instead you have a million dollars in cash. In the current environment, wh…

Thanks for your explanation, I think it helps me to understand what’s happening a little better. But how can I reconcile what you’ve said with articles like this?: https://www.cnbc.com/2018/03/15/bankrate-65-percent-of-ameri...

Two things:

1) That's America. Europeans actually save money.

2) This isn't about retail investors (normal people). These bonds are for governments, large corporations, huge business deals, etc.

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

#260

Post by henryfjordan » Wed, Aug 21, 2019, 10:47 PM UTC

tempestn wrote: post #231

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…

This might explain why the idea is more popular on one side of the political spectrum. What's interesting though is that thus far it doesn't seem like the expected inflation has been happening in the US, despite significant deficit spending. Any idea why that might be? What I've heard is a lot of, "Current levels of deficit spending are sustainable because we're not yet seeing a resulting increase in inflation." Whic…

I'm not an expert and expect this to have flaws but here goes:

Fiat currency is backed by value (not gold, but also not nothing like some people say). It's worth what we all collectively think it's worth and that's going to depend on the underlying assets of a nation.

Lets say there are $1T dollars floating around the economy and this year the Fed wants to print another 100bn. That's totally ok (and necessary) so long as there was that much value created this year. New factories have been built, businesses created, etc. This has created more underlying value in America and so it's ok that we print some more money. Your $1 bill still holds the same amount.

That's how I look at it at least.