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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

#261

Post by dgacmu »

umeshunni wrote: post #247
tempestn wrote: post #226

Earlier quoted context omitted.

Of course you could take physical cash and put it in a safe or something, but that doesn't scale well. Although maybe it does suggest a lower limit on negative interest rates, where it would actually be cheaper to store large amounts of physical cash...

You have to buy a safe, you have to have a location to store it, you need to secure the location. You need to ensure that the safe is temperature and humidity controlled, so that the currency doesn't mold, rot etc. These costs add up. Once you've done all of those things, you're essentially a bank.

+this. As a thought experiment, assume you need three full-time guards to store 100M €. Two physical and one watching the video. (why two? Less likely your guard steals all the money).

Salaries of 30k €/year. 8760 hours/year, one FTE works 2080 hours/year, so that's 4.x times 3x redundant guards, or about 500k €/year with overhead.

That's half a percent negative return.

Presumably, the physical storage cost creates a lower bound on how negative the inflation rates can go, but I'm sure I left off a bunch of other things that would add to the bottom line costs of this proposal, such as insurance.

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

#262

Post by shpongled »

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…

Also, you can sell or buy bonds at any time - you're not locked in for 30 years. I think this is a crucial point many don't understand

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

#263

Post by Spooky23 »

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…

The easier explanation is what it is... deflation.

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

#264

Post by jdhn »

marvin wrote: post #245
adventured wrote: post #102

Earlier quoted context omitted.

> Is inflation really never going to show again? In developed economies money is being removed nearly as fast as it's being added, in the form of going into the blackhole of low to negative yielding paper. It's removing a present ~$17 trillion of capital that could otherwise be sloshing around pressing inflation higher. That's an extraordinary amount of money that has largely been rendered non-impacting. There are on…

I still don't understand this at all. Is all this money that's being parked in almost no-yielding bonds just going to stay there forever, never to be used? What does this say about the state of the economy or the expectations/psychology of whomever buys them? There's either something very hard to understand that's happening to the world economy, or it's just a strange phenomenon that people pretend to understand but…

>Is all this money that's being parked in almost no-yielding bonds just going to stay there forever, never to be used?

The money can come back out, however it seems very difficult to see when that'll happen. That being said, if it does happen, I think we'll see a lot of inflation due to the sheer amount of money that would be pouring into the system.

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

#265

Post by jedberg »

Spooky23 wrote: post #263
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…

The easier explanation is what it is... deflation.

A lot of people don't really understand what that is either though...

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

#266

Post by princekolt »

nabla9 wrote: post #238
arez wrote: post #221

Earlier quoted context omitted.

the ECB also removed the 500€ bill, so the cost of storing cash went up, because you need greater storage, at least that was a theory that I heard

Indeed. 500€ bill was known as "Bin Laden" because it was so hard to find one. It was estimated that 90% of the bills were held by drug dealers, money launderers and other criminals.

They're gorgeous though. Because they're so low circulation, when you do get to see one they look brand-new. My father got one from a currency exchange this year and when he mentioned that I had to take a picture of it: https://imgur.com/a/aiaZmP2

Edit: I suppose since it was an exchange outside of Europe, they probably wanna put them in circulation before they lose legal tender status.

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

#267

Post by whatok »

wcoenen wrote: post #248
whatok wrote: post #240

Earlier quoted context omitted.

I agree with all of this and probably could have phrased my original post better. My main point is that none of this is really possible without ECB rates being set where they are. Successful monetary policy requires multiple tools to be utilized and the deposit rate is the main tool that anchors everything else. QE in itself does not mean rates are going to be lower. You need central bank rates to also be low in orde…

> Rates didn't suddenly skyrocket after the ECB announced the end of QE. That's because the QE program only stopped increasing the ECB's assets. When bonds that are held by the ECB mature, the equivalent amount in new bonds is still being re-bought. I don't think negative deposit rates are really needed to have negative bond yields. You only need a bond buyer (e.g. the QE program) who drives up bond prices beyond the…

> That's because the QE program only stopped increasing the ECB's assets. When bonds that are held by the ECB mature, the equivalent amount in new bonds is still being re-bought.

Reinvesting maturing proceeds does not produce the same effect as net purchases. One, maturities are lumpy vs regularly scheduled net purchases. There have been rate shocks where idiosyncratic country events happened outside of maturities. Two, while the ECB can basically do whatever it wants, no new net purchases restricts its ability to act in an emergency. Three, size is much smaller.

>I don't think negative deposit rates are really needed to have negative bond yields. You only need a bond buyer (e.g. the QE program) who drives up bond prices beyond the face value + all coupons. Negative interest rates were just a natural step in the progression of lower rates, zero rates, negative rates, and QE. The next thing will be some form of helicopter money.

Note how I didn't mention anything about negative rates in particular; just low rates and that the deposit rate anchors things. Whether rates are negative or not really doesn't matter in isolation. What matters is the spread vs other less risky assets for the goals of the central bank. If a central bank indiscriminately purchases bonds without regard for existing yields or the deposit rate, they will quickly lose control over the market.

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

#268

Post by seandhi »

grapehut wrote: post #114
seandhi wrote: post #99

Earlier quoted context omitted.

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

Escobar conservatively killed thousands of people. I wouldn't worry too much about insulting him.

It’s insulting to Colombians.

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

#269

Post by megaremote »

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 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 these bonds?

You think you would do that for millions and billions?

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

#270

Post by rossdavidh »

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.

I'm not saying your point isn't valid, but: https://en.wikipedia.org/wiki/Berlin_Brandenburg_Airport

Not all German infrastructure spending turns out well.

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