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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

#301

Post by javert »

tempestn wrote: post #291
javert wrote: post #272

Earlier quoted context omitted.

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.

And call it a bank. And as long as you're charging less than it would cost them to store money themselves at scale, that would work...

It's not really a bank because you aren't making loans because interest rates are negative.

If interest rates were positive, you would want to make loans, but then nobody would want to put physical euros into your vault in the first place.

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

#302

Post by cameldrv »

ryanobjc wrote: post #57
cameldrv wrote: post #20

Earlier quoted context omitted.

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?

Can they? Most 'central banks' dont really offer banking services. Eg: you can't deposit to the federal reserve. So the question is what to do with your money, that is both (a) easily transferable (b) auditable (c) safe Government bonds are the traditional answers to these. They offer all of a,b,c. And until now they even offered extra money, aka interest, as bonus. I think the best way to understand bonds is the old…

I wasn't aware that ECB reserves had a negative rate. To your point though, if you're a bank and a member of the Federal Reserve System, you definitely can deposit to the Federal Reserve. Banks have a reserve requirement as you mentioned, and in my understanding, that must either be in cash in the vault or deposits with the Fed. I believe the ECB operates with similar rules.

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

#303

Post by landivar2 »

solatic wrote: post #296
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. In practice this is turning into unnatural demand guaranteed by the law, which goes against free markets and will eventually implode upon itself. If you force the market to buy a certain product regardless of quality, then the underlying quality of that product will erode (as there is no longer an incentive to provide…

When you have a central bank that can control rates, no alternative money, and the bank can set rates negative, the equilibrium is for the government to own almost all assets. I'm not kidding. You will end up with communism, only via government regulation of rates, unless something breaks this up.

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

#304

Post by nabla9 »

princekolt wrote: post #266
nabla9 wrote: post #238

Earlier quoted context omitted.

Indeed. 500€ bill was known as "Bin Laden" because it was so hard to find one. It was estimated that 90% of the bills were held by drug dealers, money launderers and other criminals.

They're gorgeous though. Because they're so low circulation, when you do get to see one they look brand-new. My father got one from a currency exchange this year and when he mentioned that I had to take a picture of it: https://imgur.com/a/aiaZmP2 Edit: I suppose since it was an exchange outside of Europe, they probably wanna put them in circulation before they lose legal tender status.

They will maintain their legal tender status. ECB just stopped printing more and existing notes will be removed from circulation when they enter the banking system.

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

#305

Post by dredmorbius »

yasp wrote: post #251
dredmorbius wrote: post #235

Earlier quoted context omitted.

A fair question, and there's an argument that's been made (though I'm unable to recall precisely where I ran across it, possibly in a New Books in Economics podcast) that while interest rates might once have been considered exogenous (market-determined) they are now endogenous (central-bank determined). Which would mean that interest rates are (more or less) what CBs want them to be, at least within the bounds define…

Are you maybe thinking of what MMTers e.g. Warren Mosler assert? (E.g., Mosler calling for 0% interest rates, always.) If you can think of source, please let me know. Sounds interesting. Edit: It also sounds fallacious to me. Interest rates are central-bank determined because the central bank chooses to determine them. In the absence of a central bank controlling rates, there undoubtedly would still be interest rates…

It might have been John Quiggan, in this interview:

John Quiggin, "Economics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badly" (Princeton UP, 2019).

Media: https://traffic.megaphone.fm/LIT7223813423.mp3

... and if it's not, it's still a good interview to listen to (I'm giving it a repeat). Long, but informative.

The other likely candidate was a Marketplace Radio segment a few weeks back. I'd have to go hunting for that.

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

#306

Post by kthejoker2 »

landivar2 wrote: post #303
solatic wrote: post #296

Earlier quoted context omitted.

> - Many financial institutions are required to hold a certain percent of portfolio in safe assets. In practice this is turning into unnatural demand guaranteed by the law, which goes against free markets and will eventually implode upon itself. If you force the market to buy a certain product regardless of quality, then the underlying quality of that product will erode (as there is no longer an incentive to provide…

When you have a central bank that can control rates, no alternative money, and the bank can set rates negative, the equilibrium is for the government to own almost all assets. I'm not kidding. You will end up with communism, only via government regulation of rates, unless something breaks this up.

If our capital markets are so unproductive that having the government own the assets is considered a net economic gain, we'll need all the communism we can get.

The central bank does not "control" rates, they respond to the market signaling where rates should be.

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

#307

Post by SilasX »

mdemare wrote: post #158
SilasX wrote: post #125

Earlier quoted context omitted.

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

Excellent question. There is a company, The Narrow Bank, that has the same idea, but they didn’t get a banking license from the Fed. Matt Levine, whose newsletter you should clearly start reading, has the details: https://www.bloomberg.com/opinion/articles/2018-09-06/fed-re...

This is the first responsive answer I've gotten to that question.

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

#308

Post by dredmorbius »

yasp wrote: post #251
dredmorbius wrote: post #235

Earlier quoted context omitted.

A fair question, and there's an argument that's been made (though I'm unable to recall precisely where I ran across it, possibly in a New Books in Economics podcast) that while interest rates might once have been considered exogenous (market-determined) they are now endogenous (central-bank determined). Which would mean that interest rates are (more or less) what CBs want them to be, at least within the bounds define…

Are you maybe thinking of what MMTers e.g. Warren Mosler assert? (E.g., Mosler calling for 0% interest rates, always.) If you can think of source, please let me know. Sounds interesting. Edit: It also sounds fallacious to me. Interest rates are central-bank determined because the central bank chooses to determine them. In the absence of a central bank controlling rates, there undoubtedly would still be interest rates…

NB: Definitely not in the John Quiggan interview (though I did enjoy listening to it again).

The upshot was that interest rates and/or bond markets might once have been nominally open/free markets, but with the actions of central banks, that's far less the case, and reading activities as market actions is now far harder to judge.

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

#309

Post by jonathankoren »

dmoy wrote: post #288
perl4ever wrote: post #284

Earlier quoted context omitted.

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)

No one buys a 10 million dollar, 30 year bond from a bank with 34 million in assets.

It’s disingenuous to claim that all banks are equal in terms of capabilities, assets, or risk.

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

#310

Post by dmoy »

jonathankoren wrote: post #309
dmoy wrote: post #288

Earlier quoted context omitted.

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)

No one buys a 10 million dollar, 30 year bond from a bank with 34 million in assets. It’s disingenuous to claim that all banks are equal in terms of capabilities, assets, or risk.

Agreed, but you certainly do it from a bank in Germany that isn't dbag. And if you're not dbag it's not such a sure thing that the government will come and save you.

Or say in the US, you'd buy that from US Bank, which isn't in the big 4 consumer, or top few commercial, and it could be let to fail.

It's still safer than a tiny bank, but it's not as safe as government bonds.

That's all it really boils down to - you pay a bit extra to get more safety.

You may be comfortable depositing $10MM in a US Bank reg D account, but I would not be.

Well actually for US Bank specifically I might because I know their business model is incredibly conservative. But replace that with another large but not big4 bank.

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