City-Data Forum Germany Sells 30-Year With Negative Rates
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Today, 02:41 PM
 2,140 posts, read 3,894,432 times Reputation: 2623

Quote:
 Originally Posted by Spartacus713 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.
Still doesn't make sense to buy. The price of the bond is related to the coupon vs current rate. The rate for cash is 0% (you get back exactly what you put in). Negative interest rates will always be worse than cash as an investment. In your example, your bond 'cash', has a coupon of 0%. The negative interest bond is -1%. Your bond will never be worth more than the cash to purchase it. Holding it for longer just loses more value.

As a QE tool it makes sense.

Today, 02:54 PM
 2,140 posts, read 3,894,432 times Reputation: 2623
Quote:
 Originally Posted by workingclasshero 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)
Are you buying bonds or bond funds? Bonds are fixed income