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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

#171

Post by anon84598 »

arbitrage wrote: post #142
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?

everyone would be losers, because that is insane. see recent history in zimbabwe. the keyword you're looking for is hyperinflation.

But actually, anyone who held a large amount of debt would benefit since the value of their debt would shrink

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

#172

Post by stkdump »

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?

Inflation. So I guess it is like taxing everyone who holds cash in the currency that the government is printing with a flat tax.

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

#173

Post by whatok »

Like most economic and finance topics on this site, there seems to be a lot of people posting opinions/"facts" without really understanding the subject matter.

The reason why bonds are trading at negative rates in the EU are the following:

* The ECB deposit rate is -0.40%. Everything else is benchmarked against that

* The majority of the EU is either currently in a recession or rapidly heading there

* Inflation expectations are weak

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

#174

Post by beamatronic »

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 could get stolen from under your mattress. Bugs could eat it. It could catch on fire.

You would buy one of these negative bonds as a safer alternative to the risks above.

This product may not be for you, but someone would be willing to make this trade.

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

#175

Post by semi-extrinsic »

miohtama wrote: post #33
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 put a lot of money in a bank then there is a counterparty risk the bank defaulting or you getting a haircut. Money in a bank is no longer "yours". Some hardcore asset management schemes store physical US bills in a high security storage. You will pay % negative yield on yearly storage cost, but cash is truly yours and you can withdraw any day. Also in the EU, with some fintech startups, you can now open a bank…

It should be noted that "a lot of money" in this context means more than whatever limit your country has on deposit insurance. In the US, up to $250k is insured by the government against default, and it goes per account type and per bank, so you could easily store, say, $2M fully insured.

But of course, this does not insure you against systemic risks. When the financial system in Iceland broke down, depositor insurance meant nothing.

Another popular way of storing large amounts of money over long time, is to invest in real estate. Buy apartments in central Paris, London, New York. Very small risk that you lose anything, especially in real terms, if you can keep a cool head about when to sell. Downside is that these are not liquid assets.

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

#176

Post by beamatronic »

SilasX wrote: post #125
secabeen wrote: post #122

Earlier quoted context omitted.

Because a bank can go under, and you can lose your money in excess of the insured amount.

Not if it's a bank that specifically caters to this crowd and doesn't take any of the normal risks associated with lending.

You mean like... a German bank? They will happily do what you ask. For a small fee. In the form of a negative interest rate.

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

#177

Post by mdemare »

md224 wrote: post #107
andreilys wrote: post #18

Earlier quoted context omitted.

Yea that’s a good way to think about it

Does that mean a negative yield indicates a loss of trust in banks? That institutional investors are so desperate to avoid relying on banks that they're willing to take a loss on gov't bonds?

No, institutional investors never put vast sums of money in banks, regardless of the yield.

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

#179

Post by [deleted] »

whatok wrote: post #173

Like most economic and finance topics on this site, there seems to be a lot of people posting opinions/"facts" without really understanding the subject matter. The reason why bonds are trading at negative rates in the EU are the following: * The ECB deposit rate is -0.40%. Everything else is benchmarked against that * The majority of the EU is either currently in a recession or rapidly heading there * Inflation expec…

[deleted]

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

#180

Post by whatok »

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…

Good post that covers nearly everything. The only thing I would add to this is that the ECB's deposit rate of -0.40% is the only thing that has enabled all of this.
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