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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

#11

Post by whatshisface »

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…

If you take out a bunch of cash you have to store it. If you move it to an international market you suffer currency risk. If you think that the Euro is going to go up like crazy (if you forecast deflation) and you also think that every other European government has a pretty bad default risk, then you'll happily accept negative yields. Don't forget that it costs money to guard a warehouse full of cash.

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

#12

Post by Jorge1o1 »

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…

Certain investment funds and pension funds have mandates that require them to buy investment grade or sovereign debt

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

#13

Post by jldugger »

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…

If you have several million Euros to invest in fixed income securities, that would be a very large mattress. Even if you deposit it in a bank, what do they do with the money if yields are negative? Charge rent for the space, I guess.

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

#14

Post by 0xffff2 »

andreilys wrote: post #6
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…

From what I understand it’s moreso for institutional investors that have lots of capital they need to park somewhere. Making the bet that the gov will be around longer the bank But for retail investors who can store their money in a FDIC insured savings account it’s not clear why they would buy negative yield bonds.

So for an institutional investor, a negative yield bond is essentially a hedge against bank failure?

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

#15

Post by turk73 »

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…

It's a fee for them to hold onto your money because you're a big institution and required by laws or regulations to hold a certain percentage in "safe" bond type investments.

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

#16

Post by rabidrat »

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…

Individual investors would probably not buy these. It's a lot harder to keep $100m under the proverbial mattress: not FDIC-insurable, literal cash requires guards, etc. And anything else you buy to store the value (gold for instance) has higher volatility and risk than these negative-interest bonds. So the theory would go, anyway.

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

#17

Post by [deleted] »

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…

[deleted]

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

#18

Post by andreilys »

0xffff2 wrote: post #14
andreilys wrote: post #6

Earlier quoted context omitted.

From what I understand it’s moreso for institutional investors that have lots of capital they need to park somewhere. Making the bet that the gov will be around longer the bank But for retail investors who can store their money in a FDIC insured savings account it’s not clear why they would buy negative yield bonds.

So for an institutional investor, a negative yield bond is essentially a hedge against bank failure?

Yea that’s a good way to think about it

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

#19

Post by ww520 »

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…

This will make better sense if you treat money as a trading product with supply and demand.

Negative yield on an investment means the banks and investors believe the amount of money will shrink in 30 years due to less demand in the future or too much supply right now. They further believe that the yield while negative is still better than the amount of money shrinkage down the line. Thus a negative yield investment is still a sound investment.

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

#20

Post by cameldrv »

whyaduck wrote: post #4
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…

It's cheaper than a bank vault and more secure than a home safe. I can't think of any other reason to buy them, though.

Can't banks just deposit the money as reserves with the ECB and earn zero? I suppose in the 30 year case maybe you're assuming that the ECB won't pay zero on reserves in the future, but how does that explain the short term rates?
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