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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

#201

Post by josefx »

blawson wrote: post #191
logicallee wrote: post #186

Earlier quoted context omitted.

>- Many financial institutions are required to hold a certain percent of portfolio in safe assets. German bunds are among the safest in the world. Can you explain how this can possibly beat cash? If I say to you "I'll let you pay me ten cents to hold onto your $100 bill for a while, and give you a paper showing the obligation to repay your $100" (the meaning of a negative yield bond), how can the offer to let you pay…

Maybe at certain sums much larger than individual depositors concern themselves with, you can't just "hold the cash". Like banks might say there is no way we want your $10 billion in cash to look after. Either invest it yourself or pay us to invest it for you.

You really don't want $10 billion in a bank. Laws mostly guarantee a few hundred thousand per account holder if the bank itself has financial issues. You would have to spread that amount over quite a few banks if you wanted it secured.

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

#202

Post by dmoy »

jonathankoren wrote: post #104
dmoy wrote: post #60

Earlier quoted context omitted.

Cash has risks: * risk of physical destruction * risk of physical theft * risk of forgery etc etc There's some nonzero cost to accept, handle, vet, store, etc for cash. That's not even including if there are extra reporting laws or other for large amounts of cash, which just adds to the overhead.

These are all concerns with paper, not “cash” as it’s commonly considered in finance. Have $xx,xxx in a checking account at a national bank. It’s a database entry, not a pallet of pennies. Furthermore, with fractional reserve banking, I sincerely doubt if there’s enough coins and bills in the country to account for the total “cash” in all the accounts, let alone all the assets. Similarly, everyone involved in these t…

Sure but then you just introduced a completely different type of risk, which is the collapse of that bank.

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

#203

Post by AdrianB1 »

whatok wrote: post #180
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.

Actually the ability of the ECB to print money out of nothing is the main enabler.

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

#204

Post by czbond »

fourstar wrote: post #3

Those of you (US) with large stock/cash positions: what are you doing to weather the (inevitable) storm? Feels like we’re in the doom and gloom media phase. I suspect lots of people will start forgetting within the next 6 months in which the stock market will go sideways, until the next catalyst which is the US election cycle.

If you have stock gains that you need, and can't live without - consider your exit price, and perform proper portfolio maintenance.

Recession indicators have been in play for about 2 years. If nothing else, be much more aware of your high downside risk - and at least scenario model if we go down to multi-decade lows. Specifically in any items with negative EPShare, or not necessities. We're in the cycle now that hits equities -> mid-consumer spending -> business spending -> consumer spending -> real estate. Don't consider the specifics of this message, but the generalities and apply to life

Prepare for years of lower rates of return; If you own property, you will be able to re-fi in a few years to some very low rates. Cash is king for fire sales - lots of people will be going super broke the next 5 years. House prices will de-value enough, so don't buy property for the next 1-3 years. Stock market can revert to 50% of current values.

Edit: used this technique to purchase my first house, firesale. Will do it again this round, along with other lessons learned ;)

Edit 2: Listen to your own companies investor calls (if large enough) - you can predict upcoming layoffs. If you need a new job, do it now before wages stagnate or deflate some. Place yourself in a line of business that is close to a revenue stream of the business, they're rarely cut.

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

#205

Post by qubex »

camjw wrote: post #77
qubex wrote: post #32

Earlier quoted context omitted.

This means that lending money to the German federal government is considered less risky than just “holding onto your money”. You might think of money as a physical asset (cash), but really it’s far more varied, and for amounts that exceed insured deposit thresholds, you are not protected by the risk of failure (or “bail-in”) of a banking institution. Besides, as others have pointed out, these make little sense from t…

I think with quantitive easing this analogy isn’t really true anymore: there is a guaranteed buyer (the ECB) propping up the price of German sovereign debt, so making the yields artificially low.

I’ll definitely grant you that quantitative easing complicates the picture, but i it does so in ways far more complicated than you describe: firstly, the ECB buys at secondary-market prices, so the “flight to quality” effect is still there, albeit perhaps in muted form; furthermore, keep in mind that the ECB can and probably will resell those bonds that it does purchase at a later date when it will want to wind down it’s balance-sheet. Other effects also apply. Negative yields however probably do represent a true aversion to risk on behalf of investors, in some capacity or another.

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

#206

Post by jchrisa »

throwaway123156 wrote: post #146
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?

I suppose it would lead to inflation and as long as the inflation is controlled, that's doable. Effectively, the government is being funded by all dollar holders at that point. It's a wealth tax of sorts imposed on those who hold their wealth in dollars. The idea would be that the government is being funded by the fact that $100 today, is worth only about $90 last year, and that loss in value is what's funding the go…

So maybe the poor and middle class would be better off and the rich would foot the bill?

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

#207

Post by AdrianB1 »

SilasX wrote: post #54
dcolkitt wrote: post #30

Earlier quoted context omitted.

A lot of financial transactions and central clearinghouses require participants to post collateral. For example if an insurance company enters into an interest rate swap with a bank, both sides will have to post some percent of the contract's notional value in escrow. This protects both sides from counterparty risk (i.e. what if the insurance company goes out of business and can't pay its side of the swap). The colla…

There's no electronic cash account they can put up? If not, why not, and why can't we enable something like that so people aren't forced to buy bonds in order to hold cash?

Actually cash is a form of that: a $100 bill is a bank note that you have $100 in the bank. In theory if you want to deposit $1 million, the bank should just give you a note for a $1 million deposit - that would be a $1 million bank note. But all this was true when the bank note was for the gold or silver that was deposited in the bank. Now every bank note is just a paper about an amount of nothingness :)

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

#208

Post by noah_greeen »

logicallee wrote: post #186
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. German bunds are among the safest in the world. Can you explain how this can possibly beat cash? If I say to you "I'll let you pay me ten cents to hold onto your $100 bill for a while, and give you a paper showing the obligation to repay your $100" (the meaning of a negative yield bond), how can the offer to let you pay…

As some people already mentioned, the problem is the amount of cash you would have to keep safe somewhere. As far as I know, there are companies that use tunnels in mountains to act as huge cash depots. But such a storage also comes at a price. Also to prevent this kind of business, the European Central Bank already considered dismissing the 500 Euro bill. With that the physical amount to store would be even bigger. (The german economics professor Hans-Werner Sinn mentioned this once in a talk)

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

#209

Post by AdrianB1 »

dageshi wrote: post #96
SilasX wrote: post #54

Earlier quoted context omitted.

There's no electronic cash account they can put up? If not, why not, and why can't we enable something like that so people aren't forced to buy bonds in order to hold cash?

It would be counter productive to society. Put money in a bank, the bank lends it out, the money serves society buy financing a new business or perhaps consumption but either way it is doing something. Lend it to the government in the form of bonds and they'll spend it on something. If it just goes into the cash account you're describing, it does nothing but exist, in the event of recessions this would be severely da…

Not counter productive to the society: as money have nothing behind and central banks can just print it, they can print or electronically grant any amount to anyone needing it. This would not affect the trust in the value of the money because there is no such value. What is $1 or 1 Euro backed by? An ounce of Moon dust?

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

#210

Post by nyokodo »

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…

You can probably write off the losses on your tax filings also. That may play into it.
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