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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

#271

Post by AdrianB1 »

avn2109 wrote: post #215
AdrianB1 wrote: post #209

Earlier quoted context omitted.

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?

The fundamental demand for dollars and euros is caused by the fact that every April, you need to have a bunch of them. And if you don't, eventually men with guns will take you to jail.

It is different here, you don't pay the taxes yourself, they are subtracted from your salary by the employer and paid on your behalf. it is not a service you receive, the state does not trust you will pay. When you leave half of the salary on the pay day and then pay another 20% taxes on anything you buy, not many people would pay something in April, even with the men with guns threat.

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

#272

Post by javert »

dgacmu wrote: post #261
umeshunni wrote: post #247

Earlier quoted context omitted.

You have to buy a safe, you have to have a location to store it, you need to secure the location. You need to ensure that the safe is temperature and humidity controlled, so that the currency doesn't mold, rot etc. These costs add up. Once you've done all of those things, you're essentially a bank.

+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.

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

#273

Post by FPGAhacker »

DennisP wrote: post #217
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…

Not a safer asset, but possibly a more profitable one, since if interest rates go down even further, you can sell your bond for a capital gain. To see how the numbers look out, go to https://portfoliocharts.com/2019/05/27/high-profits-at-low-r... Of course if interest rates go up, you have to keep the bond until it matures (earning less interest than you would with a new bond), or sell it for a capital loss. But this…

That's a great link, thanks!

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

#274

Post by repsilat »

dgacmu wrote: post #261
umeshunni wrote: post #247

Earlier quoted context omitted.

You have to buy a safe, you have to have a location to store it, you need to secure the location. You need to ensure that the safe is temperature and humidity controlled, so that the currency doesn't mold, rot etc. These costs add up. Once you've done all of those things, you're essentially a bank.

+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…

It seems absurd that the cost of storing physical notes should have an impact on workable interest rates. Surely if the government wanted to allow you to sock away vast sums of money, they should provide a secure electronic sock and avoid the destruction of wealth that is your security costs.

And conversely, if they didn't want to provide the bed for you to keep your money under because it would defeat their interest rate policies, they should (and might) make putting money under beds illegal.

It just doesn't make sense for the sizes of socks and beds and cash denominations, and the security of locks, and the wages of security guards to determine macroeconomic policy.

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

#275

Post by FPGAhacker »

gzu wrote: post #27

I’m starting to entertain the idea of a massive bubble in bonds. Is inflation really never going to show again? I can’t understand why anyone would want to hold a fiat currency for 30 years for no return. Is it due to portfolio theory where the assumption is stocks and bonds yields have inverse correlation and the way to manage risk is to have a correct ratio? Due to global QE there is too much money floating without…

As posted elsewhere in the comments, this link went a long way to explain it for me: https://portfoliocharts.com/2019/05/27/high-profits-at-low-r...

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

#276

Post by dmoy »

jonathankoren wrote: post #232
dmoy wrote: post #202

Earlier quoted context omitted.

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

Bank collapse is pretty rare. Even accounting for 2008, there’s now a de facto government insurance plan for banks. i.e. Too big to fail.

Banks collapse often in the US. There have been 63 since 2008 with over a billion in assets.

28 since 2010.

In germany unless you're with DBAG it's not clear the government would step in and save you.

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

#277

Post by wetpaws »

blackflame7000 wrote: post #188
rags2riches wrote: post #166

Earlier quoted context omitted.

If you describe negative interest rates as "forcing people to invest their money", how would you describe deflation? Money is debt. You hold something now and expect somebody else to give you something of value for it in the future. But the future is always uncertain. You may lose out on the deal by holding on to your money. But you seem to be demanding that somebody somehow should guarantee that people never do lose…

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.

Gold is essentially the same plus liquidity trap (think of Bitcoin and it's deflationary nature)

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

#278

Post by peteretep »

kovek wrote: post #239
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…

A lot of commentators are discussing the drawdowns of storing cash bills. However, who buys bonds by paying with physical cash bills? Most of us have a number in our bank account that reflects some sort of wealth? (Ownership of a security elsewhere or an I Owe You?) People with a salary directly deposited and big companies do not need a bank to store their physical cash bills. I’m still trying to understand how this…

OK, so you have a bank balance of $1m, rather than paper bills. Your bank can go bust -- it does happen -- and you'll probably find that the Government only insures/guarantees something like the first $100,000 of that. However, the government here are selling you 30 year storage and guarantee of your balance at a small cost (the negative interest).

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

#279

Post by dmoy »

jonathankoren wrote: post #232
dmoy wrote: post #202

Earlier quoted context omitted.

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

Bank collapse is pretty rare. Even accounting for 2008, there’s now a de facto government insurance plan for banks. i.e. Too big to fail.

8 US banks collapsed in 2017, as another example.

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

#280

Post by tradeWar »

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.

Hodl!
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