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Old Today, 12:35 PM
 
13,265 posts, read 4,561,413 times
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Quote:
Originally Posted by TMSRetired View Post
Happened during the great recession and the money flew over here to our banks and into our Treasury via huge bond purchases.

The US was safe haven.
What money? The money people are saving from the negative mortgage rates? I kinda don't get it if that's what you're saying since the borrower doesn't actually see any physical cash from the loan and the savings aren't realized until the end correct?
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Old Today, 12:40 PM
 
11,130 posts, read 4,145,677 times
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Quote:
Originally Posted by Indentured Servant View Post
Maybe they are not "people"....but entities making purchases to keep the global economy afloat. I think the "fundamentals" of the global economy, and certainly our domestic economy, are weak. It's like a Ponzi scheme right now.
The thing is, when your economy is strong, or your business is strong, or your personal credit rating is strong, for that you typically get rewarded with lower interest rates, as a result of the lower risk. Not this low, but lower than people who are high risk borrowers.

For example, junk bonds are high yielding, high interest rate bonds for very risky companies. You can get a great return, but you might get stiffed, too.

Also, think hyper-inflation scenarios like what we have recently seen in Venezuela. You are not hearing about bonds with negative interest rates associated with Venezuela, whose economy is positively crashing in massive fashion. If they can find anyone to lend to them at all, the rates will be astronomical.

Contrary to the common "wisdom" of some people who are offering their opinions about this, these lower rates are not indicators of national economic expectations. They are more a factor of the excessive money supply due to "Quantitative easing" (Money 'printing' by the Federal Reserve and other central banks) and the expectations of price deflation across our economy (the opposite of price inflation).
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Old Today, 12:42 PM
 
1,645 posts, read 315,858 times
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Quote:
Originally Posted by Dbones View Post
What money? The money people are saving from the negative mortgage rates? I kinda don't get it if that's what you're saying since the borrower doesn't actually see any physical cash from the loan and the savings aren't realized until the end correct?
maybe this article can explain safe haven. I spoke about the great recession not the current situation.

https://www.americanexpress.com/us/f...ing-recession/
Safe havens are currencies and investments that are expected to either retain or increase in value when the market is under stress; therefore safe havens are sought by investors to mitigate financial risk when economic turbulence hits. Three major safe haven currencies (and their related safe haven investments) are the U.S. dollar and U.S. Treasuries; the Japanese yen and Japan's government bonds; and the Swiss franc and Swiss government bonds.
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Old Today, 12:48 PM
 
13,265 posts, read 4,561,413 times
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Quote:
Originally Posted by TMSRetired View Post
But you can sell them on the open market and the price depends on current rates.

It's only locked in if you hold it to maturity.
gotcha. Thanks!
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Old Today, 12:49 PM
 
11,130 posts, read 4,145,677 times
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Quote:
Originally Posted by Dbones View Post
Yeah I don't know much about buying bonds. When you buy them the rates can change? I would have thought you were locked into the rate at time of purchase.
Interest rates in the bond market change all the time. Every day, in fact.

The coupon payment on the bond will not change. So if you buy a 30 year, $100,000 bond with a 3% coupon, you will get payments of 3,000 per year, annually until maturity. Period. That is true regardless of what price you pay for this bond. The government is obligated to pay you $3,000 per year in interest annually and then $100,000 in principal at maturity.

But if the going rate for bonds goes up to 3.25%, then anyone buying your bond in the secondary market is going to insist that it yields 3.25%, or it makes no sense for them to buy it. In order to accomplish this, the bond is sold at a "Discount". So the sales price of that bond would be $95,254.52. That reduced price has the effect of increasing the yield on this bond.

Alternatively, if the going rates for bonds falls to 2.75%, then the sales price of this bond would be $105,062.33.

This is how a bond with a fixed coupon is repriced as a result of changing rates in the bond market.
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Old Today, 12:50 PM
 
13,265 posts, read 4,561,413 times
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Quote:
Originally Posted by TMSRetired View Post
maybe this article can explain safe haven. I spoke about the great recession not the current situation.

https://www.americanexpress.com/us/f...ing-recession/
Safe havens are currencies and investments that are expected to either retain or increase in value when the market is under stress; therefore safe havens are sought by investors to mitigate financial risk when economic turbulence hits. Three major safe haven currencies (and their related safe haven investments) are the U.S. dollar and U.S. Treasuries; the Japanese yen and Japan's government bonds; and the Swiss franc and Swiss government bonds.
Oh I got it now. Thanks again. I knew about safe havens but thought you were talking about the current situation over there with the mortgages.
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Old Today, 12:51 PM
 
13,265 posts, read 4,561,413 times
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Quote:
Originally Posted by Spartacus713 View Post
Interest rates in the bond market change all the time. Every day, in fact.

The coupon payment on the bond will not change. So if you buy a 30 year, $100,000 bond with a 3% coupon, you will get payments of 3,000 per year, annually until maturity.

But if the going rate for bonds goes up to 3.25%, then anyone buying your bond in the secondary market is going to insist that it yields 3.25%, or it makes no sense for them to buy it. In order to accomplish this, the bond is sold at a "Discount". So the sales price of that bond would be $95,254.52.

Alternatively, if the going rates for bonds falls to 2.75%, then the sales price of this bond would be $105,062.33.

This is how a bond with a fixed coupon is repriced as a result of changing rates in the bond market.
Ok, thanks for further explanation.
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Old Today, 12:52 PM
 
10,204 posts, read 6,972,515 times
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Quote:
Originally Posted by Spartacus713 View Post
The thing is, when your economy is strong, or your business is strong, or your personal credit rating is strong, for that you typically get rewarded with lower interest rates, as a result of the lower risk. Not this low, but lower than people who are high risk borrowers.

For example, junk bonds are high yielding, high interest rate bonds for very risky companies. You can get a great return, but you might get stiffed, too.

Also, think hyper-inflation scenarios like what we have recently seen in Venezuela. You are not hearing about bonds with negative interest rates associated with Venezuela, whose economy is positively crashing in massive fashion. If they can find anyone to lend to them at all, the rates will be astronomical.

Contrary to the common "wisdom" of some people who are offering their opinions about this, these lower rates are not indicators of national economic expectations. They are more a factor of the excessive money supply due to "Quantitative easing" (Money 'printing' by the Federal Reserve and other central banks) and the expectations of price deflation across our economy (the opposite of price inflation).

Yes....its counter intuitive at the best, that high risk entities get charged low (negative) rates. That is why I am questioning whether or not its "individual" investors buying these up.



I personally think we simply postponed a major economic collapse, globally, that came due during the great recession. We just flooded the world with liquidity.....which, theoretically, should have created hyper inflation.....but as you said....that new money went into stock markets instead. The bubble is in the market now.
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Old Today, 01:48 PM
 
Location: 15 months till retirement and I can leave the hell hole of New Yakistan
25,452 posts, read 14,180,396 times
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Quote:
Originally Posted by Dbones View Post
Yeah I don't know much about buying bonds. When you buy them the rates can change? I would have thought you were locked into the rate at time of purchase.
nope.. I have had Treasury bills/bonds for years


you invest (let's just say 10k) you buy a 10 year bond...CURRENTLY yielding 2%....6 months from now it could be up to 5-6% (not likely unless you go back to the 80's)... or it could be yielding 1.5%...but it is still yielding


these bonds of the thread are currently at negative percent.... but 3 months (1 qtr) from now if things improve for Germany which is in the start of a recession they could be doing well, and the yield on those bonds could pop into positive territory...






I have always said, if I won (after taxes) 10 million....pop it all into a 29 yr treasury bill, paying 2.9%...I could live off the 290k interest yearly (even with the 58k in federal taxes)(TB's are state tax free, and "can" be federally differed if you wish)
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Old Today, 02:24 PM
 
6,818 posts, read 6,618,810 times
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Quote:
Originally Posted by Dbones View Post
Why in the world would anyone want to buy them? That's some strong glue they are sniffing over there.
People betting the Euro will fail (which it probably will at some point). The bonds would be redeemable in Deutsche marks if Europe went back to using it's own sovereign currencies, and the German mark would be considered one of the cleaner shirts in the dirty hamper. That is just what I have heard.
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