Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

wsj.com

Post reply on HN
Print view View original

291–300 of 314 posts

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

#291

Post by tempestn »

javert wrote: post #272
dgacmu wrote: post #261

Earlier quoted context omitted.

+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…

Instead of having a vault with just 100M euros, it probably makes more sense economically to build a huge vault that can store billions of euros, and then charge people to use the vault.

And call it a bank. And as long as you're charging less than it would cost them to store money themselves at scale, that would work...

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

#292

Post by ThrustVectoring »

ant6n wrote: post #289
ThrustVectoring wrote: post #243

Earlier quoted context omitted.

The stereotypical HN reader (age 20-40 tech professional) should have three to six months of salary in cash (interest-bearing savings/checking/money market account), rest in low-cost equity index funds (I use 60% VTI / 40% VXUS). Gold is, IMO, a disaster preparedness thing you buy after purchasing a shotgun, ammunition, and a month's worth of canned food. The main use case for gold is as highly portable physical weal…

That's an interesting implied point. Does it make sense to hold gold on paper, if it's mostly useful in highly messed up situations where paper gold would become worthless?

Yeah, I wouldn't do that. Security costs for physical gold are already low if you have a way to securely store a shotgun, most of what you're dealing with is a wider buy/sell spread, which is pretty small overall.

The problem with "paper gold" of various sorts is that it usually winds up being a promise to give you a certain number of dollars based on the spot price of gold. This is a problem if dollars stop being of practical use.

There's still a hell of a lot of things that are better to do before buying physical gold here, of course. Bigger risk-mitigation moves are like, minor emergency preparedness, own-occupation disability insurance, term life insurance, and dumping a ton of money into the stock market for getting enough long-term price appreciation.

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

#293

Post by blackflame7000 »

zeveb wrote: post #230
blackflame7000 wrote: post #188

Earlier quoted context omitted.

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.

The problem is that the purchasing power of gold isn't relatively constant: what you can buy with 1 oz. today and what you can buy with 1 oz. tomorrow are not necessarily the same — so you have much the same problem. Moreover, the relative constancy of the gold supply is a problem, because as the economy grows that makes each unit of gold more valuable … which leads to deflation, which is far worse than inflation, an…

1 oz. of gold doesn't change from day to day, rather, only people's opinion of it changes. In that sense, is there anything you can think of that people would want as much or more in the future than they do today? I can think of maybe 1 thing, sex, but I don't even want to begin to imagine how a system like that would work haha.

Ultimately I agree that fiat currency is a necessary evil because of the ability to expand with the economy.

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

#294

Post by simonebrunozzi »

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…

Great comment, however:

> the central bank buys bonds with money it creates from thin air

QE generates inflation in the long run, which would by definition make these bonds less valuable over time.

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

#295

Post by Dylan16807 »

samsonradu wrote: post #256
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

A fun comment, but it's a really easy paradox to solve.

If you have less than 1 million dollars you should be saving money. If you have more than 10 million dollars you have too much money.

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

#296

Post by solatic »

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.

In practice this is turning into unnatural demand guaranteed by the law, which goes against free markets and will eventually implode upon itself. If you force the market to buy a certain product regardless of quality, then the underlying quality of that product will erode (as there is no longer an incentive to provide quality and quality implies cost), and the market will evaporate as stakeholders disappear and move to other markets which do assure real quality. That there was natural demand for such products in the past, and indeed that natural demand may coincide with unnatural demand in the present, is not a guarantor for demand levels staying natural in the future.

In context, this creates underlying pressure for investors to divest from Euro holdings. It's likely that investors are currently sticking with the Euro because they have few other avenues for escape, but this is not likely to hold - whether due to Brexit/Euroskepticism or some other external crisis which changes the playing field.

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

#297

Post by Atheros »

nostrademons wrote: post #152
unreal37 wrote: post #141

Earlier quoted context omitted.

Expecting the price of something to rise in the future is not the definition of a bubble. When people were selling houses in Detroit at the bottom of the housing crisis for $1000, the people buying them were expecting the value to rise in the future. It's almost like profiting off of fear not greed.

Expecting the price to rise when you know the underlying fundamentals don't support that price is the definition of a bubble. People buying houses in Detroit have an investment thesis that there will still be people living in Detroit and they will still need houses, and even more broadly, that there will be more people needing more houses than there were at the bottom of the housing crisis. They may be right or wrong…

That's not what's happening with bonds. The underlying fundamentals do support a higher price if interest rates go down. The price would then stay there until interest rates rise. In all of these cases the market price is fully rational and fully supported.

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

#298

Post by dvfjsdhgfv »

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…

> - Anticipated rate of inflation matters a lot because investors seeking return through yield focus on real interest rates (nominal rate - inflation). Inflation can be negative as well (deflation). If inflation is lower (more negative) than the bond's nominal return, that's a real positive yield. And that positive yield is locked in for the term of the bond, which in the case of the story is 30 years.

But for this and the other reasons you mention, wouldn't cash be in any case better than the bonds?

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

#299

Post by solatic »

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…

> They can't loan it out again because no one wants to borrow that much.

Which is why this is a signal that the economy is failing. The underlying behavior which drives the value of currencies is that the currency is being used. If people just stockpile cash then the value of that cash is eroding as people find fewer uses for it.

Since the productive use for debt is as an engine for growth, if there isn't anybody looking to secure debt for growth then we're seeing the long-term effects of a loss of dynamism in the economy, which is detrimental pressure on the underlying economy itself. It's not sufficient to try to persuade people to spend more on consumption (people are always incentivized to consume) - people need to be incentivized to take risks for growth, which they currently are not.

What the central banks will realize is that you can't incentivize people to take risks by holding a financial gun to their heads - that only incentivizes people to seek further safety. You need to, perhaps paradoxically, make it safer to take risks. If the ordinary control for doing so (reducing interest rates) isn't working, then there's a compounding factor which is preventing that safety from being felt.

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

#300

Post by turbinerneiter »

rossdavidh wrote: post #270
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.

BER is it's own special case, but the general gist I'm piecing together from media reports is that Germany has a planning problem because there are not enough government workers to plan projects.

For example, there is a budget reserved for infrastructure. The poor regions often fail to produce good enough project plans in time. The richer regions have more planners and present additional projects at the end of the year to get the left over money.

Post reply on HN