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

Interest Rates: Naturally Negative?

blog.pimco.com

Post reply on HN
Print view View original

11–20 of 147 posts

Re: Interest Rates: Naturally Negative?

#11

Post by [deleted] »

samsonradu wrote: post #10
toomuchtodo wrote: post #3

Earlier quoted context omitted.

> but as an individual or institutional investor why would you ever want to hold something with negative interest instead of cash? There are no effective ways besides these bonds to hold tens or hundreds of millions of dollars as cash, even if you hire a warehouse, security, and store pallets of fiat (which has been attempted). You are paying a premium for principal safety. You either make this choice voluntarily as…

This, coupled with the pure speculation that before the bonds mature there will be a 'bigger investor' paying more (pushing the yield lower and the value higher).

[deleted]

Re: Interest Rates: Naturally Negative?

#12

Post by xchaotic »

Obviously this article shows up when the negative rates are already here, with the benefit of hindsight. What I am more interested in at this point is what is a good, safe alternative for a small time investor who’s already overweight on equities and housing. Bonds used to be the sensible pillar that worked at times when stock market crashed and now it doesn’t really make sense to use them for a small guy.

Re: Interest Rates: Naturally Negative?

#13

Post by basementcat »

wefarrell wrote: post #6
opportune wrote: post #2

I understand why you would want to set interest rates negative if your central bank is going to buy up all that debt, but as an individual or institutional investor why would you ever want to hold something with negative interest instead of cash? Why is there even a market for a bond with negative interest rates at all, since compared to a $X bond with negative interest, $X in currency seemingly carries less risk, mo…

It makes no sense for an individual, since you can keep your money in an FDIC insured account and earn a positive interest rate. Institutions don't have that luxury - the government doesn't insure large amounts of cash. If they keep it in a bank and the bank goes under, they lose their money. So they keep their money in national governments, which are far safer than banks.

There’s no requirement that FDIC accounts must pay an interest rate above 0%. It is perfectly legal to charge fees to fund the continued operation of the bank.

Re: Interest Rates: Naturally Negative?

#14

Post by pbk1 »

opportune wrote: post #2

I understand why you would want to set interest rates negative if your central bank is going to buy up all that debt, but as an individual or institutional investor why would you ever want to hold something with negative interest instead of cash? Why is there even a market for a bond with negative interest rates at all, since compared to a $X bond with negative interest, $X in currency seemingly carries less risk, mo…

If I expected interest rates to go even more negative, buying a negative yielding bond in anticipation of a capital gain is a rational trade.

Also banks and certain investors are mandated to purchase debt with certain ratings - in the absence of positive-yielding appropriately rated bonds they have no choice but to accept the negative yield.

Re: Interest Rates: Naturally Negative?

#15

Post by rubbingalcohol »

somebodythere wrote: post #4
toomuchtodo wrote: post #3

Earlier quoted context omitted.

> but as an individual or institutional investor why would you ever want to hold something with negative interest instead of cash? There are no effective ways besides these bonds to hold tens or hundreds of millions of dollars as cash, even if you hire a warehouse, security, and store pallets of fiat (which has been attempted). You are paying a premium for principal safety. You either make this choice voluntarily as…

Also cash can be made illegal.

Technically but likely not functionally.

Re: Interest Rates: Naturally Negative?

#16

Post by all_blue_chucks »

xchaotic wrote: post #12

Obviously this article shows up when the negative rates are already here, with the benefit of hindsight. What I am more interested in at this point is what is a good, safe alternative for a small time investor who’s already overweight on equities and housing. Bonds used to be the sensible pillar that worked at times when stock market crashed and now it doesn’t really make sense to use them for a small guy.

It's only government bonds that go negative. Corporate bonds will always provide a positive yield.

Re: Interest Rates: Naturally Negative?

#17

Post by [deleted] »

all_blue_chucks wrote: post #16
xchaotic wrote: post #12

Obviously this article shows up when the negative rates are already here, with the benefit of hindsight. What I am more interested in at this point is what is a good, safe alternative for a small time investor who’s already overweight on equities and housing. Bonds used to be the sensible pillar that worked at times when stock market crashed and now it doesn’t really make sense to use them for a small guy.

It's only government bonds that go negative. Corporate bonds will always provide a positive yield.

[deleted]

Re: Interest Rates: Naturally Negative?

#18

Post by gst »

wefarrell wrote: post #6
opportune wrote: post #2

I understand why you would want to set interest rates negative if your central bank is going to buy up all that debt, but as an individual or institutional investor why would you ever want to hold something with negative interest instead of cash? Why is there even a market for a bond with negative interest rates at all, since compared to a $X bond with negative interest, $X in currency seemingly carries less risk, mo…

It makes no sense for an individual, since you can keep your money in an FDIC insured account and earn a positive interest rate. Institutions don't have that luxury - the government doesn't insure large amounts of cash. If they keep it in a bank and the bank goes under, they lose their money. So they keep their money in national governments, which are far safer than banks.

> Institutions don't have that luxury - the government doesn't insure large amounts of cash. If they keep it in a bank and the bank goes under, they lose their money. So they keep their money in national governments, which are far safer than banks.

Due to the low interest rates German insurance companies are already considering to store cash in their own vaults instead of buying bonds: https://translate.google.com/translate?hl=&sl=de&tl=en&u=htt...

Slightly negative interest rates work because physically storing cash is going to be more expensive than buying bonds (especially if you factor in costs for security, insurance, etc.). But if interest rates decreases further it's soon going to be cheaper to store cash, which is going to create a lower bound for the interest rate (assuming the government doesn't prohibit storing large amounts of cash).

Re: Interest Rates: Naturally Negative?

#19

Post by perfunctory »

xchaotic wrote: post #12

Obviously this article shows up when the negative rates are already here, with the benefit of hindsight. What I am more interested in at this point is what is a good, safe alternative for a small time investor who’s already overweight on equities and housing. Bonds used to be the sensible pillar that worked at times when stock market crashed and now it doesn’t really make sense to use them for a small guy.

Invest in reducing your energy bill if you haven't done so yet. solar plus storage plus house isolation. Should also raise the value of the house. In theory.

Re: Interest Rates: Naturally Negative?

#20

Post by DennisP »

opportune wrote: post #2

I understand why you would want to set interest rates negative if your central bank is going to buy up all that debt, but as an individual or institutional investor why would you ever want to hold something with negative interest instead of cash? Why is there even a market for a bond with negative interest rates at all, since compared to a $X bond with negative interest, $X in currency seemingly carries less risk, mo…

Because if interest rates drop even lower, you can get capital gains on your bonds, especially if there's a lot of time left before they mature.

https://portfoliocharts.com/2019/05/27/high-profits-at-low-r...

Post reply on HN