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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

#81

Post by hsk823 »

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?

But the bonds themselves are issued by the same organization that's also issuing the cash to be circulated in the economy.

Cash can lose value as well if it just sits, inflation being the key reason.

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

#82

Post by lazyguy »

amadeusw wrote: post #7
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…

I'm also curious about this. Does it mean that people are betting that $Y will be more valuable than future cash equivalent of $X due to inflation?

No. Bonds are based on their money amount. So as money loses value due to inflation then so does the bond.

If you want to hedge against inflation you would need to invest in something that either yields a positive return or something whose value isn't tied directly into a money amount, like land.

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

#83

Post by [deleted] »

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…

[deleted]

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

#84

Post by elcomet »

thorwasdfasdf wrote: post #80

I understand that policy makers think that low interest rates will encourage people to put their money into investments like the equities or a business by forcing people out of saving. But, have they ever considered that they may actually be achieving the opposite? Someone who just turned 65 (like aging Europe), really really needs to save in safe assets. Negative yielding bonds don't change that need! So, instead of…

I think that's the point isn't it? To provide extra-safe assets for people who need it.

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

#85

Post by fauigerzigerk »

cameldrv wrote: post #20
whyaduck wrote: post #4

Earlier quoted context omitted.

It's cheaper than a bank vault and more secure than a home safe. I can't think of any other reason to buy them, though.

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?

The ECB charges for deposits as well. The deposit rate is -0.4%

https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...

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

#86

Post by graedus »

snowwrestler wrote: post #46
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…

There are dozens of answers here that explain why institutions buy sovereign debt, in general. What those comments don't explain is why anyone would buy this particular sovereign debt. So: why would anyone buy negative-interest-rate German bonds when U.S. Treasury bonds still have positive interest rates, and are available in much higher volumes?

I think there are laws stating that certain kinds of German institutions must buy German bonds, but I'm not sure.

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

#87

Post by whatok »

snowwrestler wrote: post #46
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…

There are dozens of answers here that explain why institutions buy sovereign debt, in general. What those comments don't explain is why anyone would buy this particular sovereign debt. So: why would anyone buy negative-interest-rate German bonds when U.S. Treasury bonds still have positive interest rates, and are available in much higher volumes?

Because those positive yields are only available if you don't hedge your FX risk. Most institutional investors have a mandate to hedge FX risk and this will take UST returns for EUR investors negative.

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

#88

Post by gowld »

mrfredward wrote: post #50
Jorge1o1 wrote: post #12

Earlier quoted context omitted.

Certain investment funds and pension funds have mandates that require them to buy investment grade or sovereign debt

It's quite terrifying to think that pension funds are using forecasts of healthy returns to claim they are well funded, whilst simultaneously making investments with guaranteed negative returns.

There's nothing particularly terrifying about "negative". What's terrifying is the delta between forecasts and actual returns.

Forecasting 8% vs actual 2% is much more terrifying that forecasting 1% vs actual -1%.

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

#89

Post by rchaud »

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.

Look at the S&P 500 index from early 2008 to say 2012. Governments will enact policies to prop up the stock and bond markets, as they always have.

Our entire civilization is held up on the promise that financial market indices go up over time, except for temporary recessionary periods. We just accept that retirees cashing out at the wrong time will be victims of 'collateral damage' during these 'market corrections'.

Everything from job growth, to the pension funds that you contribute to, to the municipal bonds governments issue to fund projects, rests on this one core assumption.

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

#90

Post by darksaints »

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…

Could you though? Inflationary and deflationary forces are constantly at work modifying the value of the money you have under your mattress.
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