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Old Today, 11:27 AM
 
11,130 posts, read 4,145,677 times
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Over the last year, governments have increasingly been selling bonds with negative interest rates. So you the sum of the payments that you get back are less than the amount that you initially pay for the bond.

Quote:
Germany Sells 30-Year With Negative Rates

On Wednesday, for the first time ever, the German government sold 30-year bonds at a negative interest rate. The bonds pay no coupon interest at all. Yet bidders at the auction were willing to pay more than the face value they would receive back when the bonds mature.

The sale added to the mountain of negative-yielding bonds around the world that investors have gobbled up, suggesting that they expect global growth and inflation to remain subpar for years to come. After all, accepting a negative yield on a bond — agreeing, in effect, to lose money in exchange for parking money in a safe place — could reflect expectations that yields will sink even further into negative territory.

“You’re essentially paying a warehouse fee by paying these negative rates,” said Jim Bianco of Bianco Research in Chicago. Worldwide debt with negative rates has surged to $16.4 trillion from $12.2 trillion in mid-July and $5.7 trillion in October, Bianco said. “Until a few months ago, negative-yielding debt was an interesting curiosity,” he said. “In the last three months, it’s become a mainstay in the marketplace.”
Most of these have been in Japan and the EU. What makes that even more interesting is that both of those countries already have enormous amounts of national debt relative to their economic capacity. Riskier debt typically has higher interest rates to compensate for that higher risk. But these bonds still have interest rates that are below zero.

Part of what makes this possible is the near zero interest rates that the central banks around the world have maintained since the financial downturn in 2008. This money has pushed into the economy, in order to try to stimulate economic growth.

But you cannot push a string. So most of this money has been borrowed and reinvested in the stock and real estate markets, which are now at very high prices. So high that many large investors believe that the markets cannot continue to rise the way that they have been and have to turn down at some point. So there are enough people who do not feel comfortable investing in stocks and real estate, and want something that they consider to be safer, which traditionally means bonds.

This means higher quantities demanded of these bonds, which results in the yields being bid lower by the buyers.

It is called deflation and it is THIS that I believe that central banks have been working so hard to avoid. But as these negative yield bond auctions indicate, they do not appear to be succeeding.
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Old Today, 11:37 AM
 
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It's not the first time German bonds have gone negative.
Germany also has a mixed economy...free market + command and their auto industry has been hit hard and their economy has been contracting for months now. They are heavily dependent on exports.

So this should not be a surprise for anyone that follows global news.

Italy is another country worth watching.
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Old Today, 11:39 AM
 
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Why in the world would anyone want to buy them? That's some strong glue they are sniffing over there.
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Old Today, 11:40 AM
 
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Originally Posted by TMSRetired View Post
It's not the first time German bonds have gone negative.
Germany also has a mixed economy...free market + command and their auto industry has been hit hard and their economy has been contracting for months now. They are heavily dependent on exports.

So this should not be a surprise for anyone that follows global news.

Italy is another country worth watching.
So, would you want to be invested in negative interest rated bonds, then?
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Old Today, 11:42 AM
 
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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.
i'm hoping someone can explain that. makes no sense to me either.
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Old Today, 11:42 AM
 
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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.
Because in the minds of many people, what is more important than the return on your investment, is the return of your investment. The people who are investing in these bonds believe that the money supply conditions will continue to be so loose and the inflation prospects so low, that this is the best way to keep from being exposed to even bigger losses.
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Old Today, 11:43 AM
 
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Originally Posted by Spartacus713 View Post
Because in the minds of many people, what is more important than the return on your investment, is the return of your investment. The people who are investing in these bonds believe that the money supply conditions will continue to be so loose and the inflation prospects so low, that this is the best way to keep from being exposed to even bigger losses.
So why not just keep cash in your safe deposit box? You'll get back exactly what you put in.
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Old Today, 11:44 AM
 
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Originally Posted by Rachel976 View Post
So why not just keep cash in your safe deposit box? You'll get back exactly what you put in.
Exactly what I was thinking
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Old Today, 11:51 AM
 
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Quote:
Originally Posted by Spartacus713 View Post
So, would you want to be invested in negative interest rated bonds, then?
Of course not. People with big money do that to hedge against bigger losses.
The thought is "I might lose 2% now but if I wait I might lose 5% later".

If NIRP came to the US and hit banks then I would move my money to the "First National Bank of the Mattress".
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Old Today, 11:52 AM
 
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Originally Posted by Rachel976 View Post
So why not just keep cash in your safe deposit box? You'll get back exactly what you put in.
It's not Joe Normal buying these bonds. It's the billionaires and institutions sitting on millions, billions, trillions.
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