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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

#281

Post by perl4ever »

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?

Some people have asked, if US banks pay a minute amount of interest in savings, and the Fed pays like 2% or more on deposits by banks, why can't someone just start a bank that stores deposits at the Fed and passes through the interest?

And the answer appears to be, because the Fed won't let them, because they are afraid it could undermine the regular banks.

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

#282

Post by perl4ever »

AdrianB1 wrote: post #271
avn2109 wrote: post #215

Earlier quoted context omitted.

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.

In the US, the government also withholds taxes from your paycheck, and in other circumstances.

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

#283

Post by perl4ever »

JumpCrisscross wrote: post #163
jonathankoren wrote: post #104

Earlier quoted context omitted.

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…

> Have $xx,xxx in a checking account at a national bank At the scales of financial infrastructure, bank deposits are not cash. They are debt issued by banks. The point of collateral is to give a bank’s word weight.

Or, based on what I read in financial statements, "cash" and "short term securities" kind of blur together.

Cash is more of a general category of things that are suitable to use for similar purposes, than one specific thing.

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

#284

Post by perl4ever »

dmoy wrote: post #279
jonathankoren wrote: post #232

Earlier quoted context omitted.

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.

Wikipedia has a list of the specific banks, and most of the recent ones have been quite small.

e.g. The Farmers and Merchants State Bank of Argonia with about $34M in assets.

The FDIC has stepped in as expected with all of these, I believe.

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

#285

Post by gzu »

FPGAhacker wrote: post #275
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...

Thanks for the link! My take from that is the bubble is even worse than I thought. I didn’t realize the capital appreciation part and how sensitive long term notes are to rate changes. It seems to more or less work on the greater fool theory between central banks and investors. The intrinsic value held within the bonds is not there and where is the stopping point on the negative side? There’s a discrepancy between Central banks lower rates and bid up bonds through QE so bonds rates are continually on the decline and investors use that rate lowering for returns when bonds appreciating in value.

The amount of compounding leverage here between all parties would mean the system would implode if bonds went the other way for a longer duration. Maybe this threat of implosion only further accelerates lowering of rates as there is no alternative and even systemic deflation risk.

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

#286

Post by perl4ever »

seandhi wrote: post #268
grapehut wrote: post #114

Earlier quoted context omitted.

Escobar conservatively killed thousands of people. I wouldn't worry too much about insulting him.

It’s insulting to Colombians.

Maybe it's insulting to Steve Jobs.

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

#287

Post by Scoundreller »

AdrianB1 wrote: post #271
avn2109 wrote: post #215

Earlier quoted context omitted.

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.

It’s a funny system where citizens aren’t trusted but corporations are.

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

#288

Post by dmoy »

perl4ever wrote: post #284
dmoy wrote: post #279

Earlier quoted context omitted.

8 US banks collapsed in 2017, as another example.

Wikipedia has a list of the specific banks, and most of the recent ones have been quite small. e.g. The Farmers and Merchants State Bank of Argonia with about $34M in assets. The FDIC has stepped in as expected with all of these, I believe.

Yes, but the FDIC equivalent in Germany is 100k, which doesn't help you if you're in the business of buying 30 year bonds (usually that's institution buying >10MM)

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

#289

Post by ant6n »

ThrustVectoring wrote: post #243
sunseb wrote: post #38

Do you think it's a good idea to put some savings in gold?

The stereotypical HN reader (age 20-40 tech professional) should have three to six months of salary in cash (interest-bearing savings/checking/money market account), rest in low-cost equity index funds (I use 60% VTI / 40% VXUS). Gold is, IMO, a disaster preparedness thing you buy after purchasing a shotgun, ammunition, and a month's worth of canned food. The main use case for gold is as highly portable physical weal…

That's an interesting implied point. Does it make sense to hold gold on paper, if it's mostly useful in highly messed up situations where paper gold would become worthless?

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

#290

Post by [deleted] »

jedberg wrote: post #229

The best explanation I've heard for negative rates is this: Imagine you have a million dollars worth of cars. If you want to store that in a bank, you'd pay them money to do so. Why? Because the car has no value to the bank. The only thing they can do is store it in the vault, which requires security personnel, space, climate control, etc. Now instead you have a million dollars in cash. In the current environment, wh…

[deleted]
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