cnbc.com/2019/08/21/negative-yielding-debt-poses-major-risks-for-investors.html >"“The interest rate risk that these bonds carry is huge,” Bianco said in a recent interview. “The financial system doesn’t work with negative rates. If the economy recovers, the losses that investors would take are unlike anything they’ve ever seen.”
>Negative yields have been confined to places outside the U.S., though some Federal Reserve officials have toyed with the idea at least in a hypothetical sense. Former Fed Chairman Alan Greenspan recently jolted some investors when he said there was nothing actually standing in the way of negative U.S. rates.
>Most of the negative-yielding corporate debt is in Switzerland, while some also is in Japan, Bianco said."
Do they make you pay them for holding their debt? I need to start issuing negative yield bonds. Apple is doing 30 year bonds at under 3%? They're printing so much money that it has to go somewhere.
This is Bitcoin's ultimate use case, hedge against inflationary currencies, bonds and debt.
>Do they make you pay them for holding their debt? I must have missed this part
>Investors don’t actually pay to borrow money, but the negative yield is symbolic of how much above par investors are willing to pay for these bonds.
That’s because those who buy negative-yielding bonds are essentially making a bet that rates will stay low and prices will rise, which is the traditional relationship when it comes to fixed income. Should rates start to rise even a little, that will start to eat into the capital appreciation that bond holders have been enjoying.
For instance, Bianco said, if yields on Swiss bonds go up just 2 percentage points, it would amount to a 50% loss for holders. While some individual investors might be able to absorb such losses, they would be catastrophic for institutions.
Hudson Carter
On the sovereign side, Germany is the starkest example of negative rates, with yields all along the curve there trading below zero. That has pushed prices up dramatically. In Tuesday trading, buyers were paying the equivalent of $195.87 for every $100 in 20-year German bunds, all for a technical yield of minus-0.386%.
Bianco attributes the negative-yield trend to entities including the European Central Bank pumping money into the financial system and pulling investors along for the ride.
“They’ve so flooded their financial system with money that there’s not enough alternatives,” he said. “That’s why you have people paying such astronomical prices that you wind up with negative yields.”
Sebastian Martin
On the corporate side, the picture isn’t much prettier outside the U.S.
The $27.8 trillion of non-U.S. dollar investment grade global debt is collectively yielding just 0.11%, according to Hans Mikkelsen, credit strategist at Bank of America Merrill Lynch. Of all global investment grade debt delivering any yield, 95% is from the U.S.
“We continue to think there is a wall of new money being forced into the global corporate bond market,” Mikkelsen said in a recent note to clients. “The trigger is lower interest rate volatility or simply the passage of time, as a lot of foreign investors are being charged (negative yields) for being underinvested.”
Jack Evans
>In Europe, banks have kept deposit rates above zero for retail consumers, fearing that households may simply withdraw their funds and hoard cash if faced with negative rates. As the banks look to avert a profit squeeze, they have snuck in more fees and tried to keep lending rates up. Nevertheless, bank profits are hollowing out and some banks, such as UBS, BNP Paribas and Deutsche Bank, are struggling with shrinking margins.
>The bond market just isn’t your father’s bond market anymore.
>The definition of a bond has not changed. Bonds, which are IOU’s from governments, municipalities, and businesses, are issued to investors in exchange for interest payments over an agreed amount of time. For example, when Uncle Sam borrows money by issuing a 10-year U.S. Treasury bond, it agrees to pay interest payments twice per year to the people who buy the bond, and on the 10-year anniversary of the issue date, the investor gets the last interest payment plus the full face value of the bond. That’s 20 interest payments plus return of original face value.
>The basic concept in the bond seller and buyer relationship has not changed either. >When you buy a bond, you are sort of like a bank — lending money to a borrower who then pays interest.
>Basic investor needs are still the same. You’re right to be thinking, “I just want a safe place to put my money and collect a little interest for the next 10 years.”
Juan Green
yeah that's traders but what about holders? What about the record number of retirees this year in america? If the stock market crashes, their 401k's are fucked and they don't have any income from bonds to make up for it. You can act like this is a sane system but only for a few. Bonds are supposed to be more than a flip for wall street, they're a way to reward smart investor, savers, etc. The type of behavior we should be rewarding in this market. Another use case of bitcoin, teach these fucks how to save. No one is encouraged to save notes printed to infinity
Thomas Adams
Fun, a thread about real finance, and negative interest at that.
Im curious, there’s a certain building in Japan I wish to buy, I’d wager it’s worth around 50 mil USD max. Current plan is bulk as much asset as I can, then either buy it outright or get a loan for it with what I have, telling the bank that 100% of the revenue from the building would go to paying off the loan (and maintenance), and that I have no interest in making a profit off the asset, just the eventual ownership of the asset itself. The final option is wait for a global depression and buy the thing for satoshis on the fiat dollar. How do negative interest loans come into play here? I’m assuming I’d need to get one from the country I intended on purchasing the property from, as no other country would be incentivised to give out such a loan in cash. This also saves the possibility of one economy tanking, the exchange rate going to fuck, and me left earning fuck-all off the property compared to the required repayments. Repossession is not an option here.
Could I just waltz up to some bank in Japan when their economy has a bad day and say “I’ll bring in $2m USD worth of gold into your country and economy to use as a downpayment if you give me a negative or zero rate loan, all profits from the loan will go to paying it off, and after that I’ll never bring a yen of profit outside of Japan. I’m insane and sentimental enough not to care about making money here. Exploit me for the sake of your economy. Wanna deal?”
What’s the buy-in to get to this table?
Hudson Wilson
You see, europeans banks have these negative interests on their excess reserves in the ECB, so they try overnight to have no excess at all. They lend money each other at EONIA rate or buy these 1-day bonds, because they lose less money that way.
Tyler Davis
all bonds reach par at maturity, holders will get fucked eventually. it's basically a big ponzi scheme, but if the central banks are giving out free money, who wouldn't line up for some?
Luis Ross
>Why would people trade negative yielding bonds PEOPLE don't. governments have regulations requiring large retirement funds to hold a certain percentage of their portfolio in the form of government issued bonds. these are old laws that were in place to protect people's retirement accounts from too much risk - govt. bonds have been among the safest form of investment. Fast forward to the current situation where everything is totally fucked and melting down and now govts are using this existing ruleset to FORCE large retirement fund managers to purchase these absolute shit tier negative yielding bonds. The fund managers do not want to buy this garbage but they are required to do so by law and the govt jerkoffs in charge know it is terrible for the funds but they DO NOT CARE. >game over approaches.
need to be a bank to get that rate makes sense, thank you >all bonds reach par at maturity, holders will get fucked eventually. it's basically a big ponzi scheme this is what I was thinking in my head, it's a game of hot potato >governments have regulations requiring large retirement funds to hold a certain percentage of their portfolio in the form of government issued bonds I was under the impression that this has been dropping to record lows but I did forget about requirement for retirement funds Bitcoin was created to replace dollars but it does a better job of replacing bonds this idiot calls negative rates market driven, no they're central bank driven
Dylan Jenkins
>this idiot calls negative rates market driven, no they're central bank driven the market is the tail that wags the dog. check the funds futures at the CME. also kys for thinking you're not retarded.
Andrew Morgan
you say market driven and then you say driven by market after I corrected you but you use a dog and tail analogy? Dude you are too full of yourself, and i doubt you know much about finances. Your comments sure make you seem simple minded.
Michael Bailey
I think its one of those things that in 2150 people will wonder how retarded we must've been to think this would work...
It'll work until it doesn't, this one won't end nicely.
Sebastian Morales
>need to be a bank Well fug, guess I’ll keep hodling then...
Ethan Mitchell
Nah, same way you can pass the bonds onto the next guy, you can just pass the economy onto your kids, right? Get a shit system, hope it holds together long enough to hand it onto the next generation.
Jaxon Edwards
i'm hopin there's a middle ground between these 2 where we can transition into a healthier system. Maybe multiple currencies is better like in older eras. People need to be encouraged to save more though. This system of spend the fiat the fastest or don't be caught holding a bond last is what created BTC. More bank bailouts and QE ahead and no one is even mad about it. We take it as needed medicine. That's bullshit and everyone of us knows it deep down inside.
That's why you fucking buy Bitcoin
Mason Brooks
The only thing I still use fiat for is things like phone bills and car insurance. The rest goes into crypto with only enough left over to cover the fiatshit. If everyone shifts to storing their wealth in crypto, and more and more people answer “yes” when I ask them if they accept crypto, eventually we’ll find ourselves in a place where we no longer need fiat at all. I was chatting to a friend about living in a country with hyperinflation, he said that because he was a foreigner he had the luxury of using USD, and even though it was illegal, all pricing was based around USD. They’d display the cost in local currency adjusted for the US exchange rate, and the customers would do the math and hand them the right amount of USD. Crazy shit. I asked him what he think’s gonna happen when the USD collapses, he just laughed and said “better hope the internet’s still up” Jokes aside, he said the yankbuk will hold longer than others, but all will fall. I’d find it interesting if the fiat economy started collapsing around us, but as the pillars of granite all turned to sand and started falling we hardly notice because we’re on a solid surface. Wake up, go order some breakfast, translate your coin to fiat on the spot for the transaction not even looking at the price in USD, not noticing the burger you’re buying is $13,500 while other people are crying or starving Filling up your car and paying what you think is reasonable not realising you paid over a hundred thousand USD for the privilege.
Connor Jones
>eventually we’ll find ourselves in a place where we no longer need fiat at all. maybe, or we wouldn't need fiat for much. I like having cash for unique reasons when i go places or do things, like drink with certain people. I think it might be a niche use but still exist. It's actually very anonymous in some transactions
Brandon Davis
Going drinking, giving the bartender 1g of gold and telling him to serve me till it runs out etc, taking your friends out to a restaurant and paying 3g of gold etc. Just examples on how it’s possible. I just think that cash will become inconvenient if you pull some out one day and a week later it’s worth a thousandth what you paid for it. Maybe at the start of a night out, sure.
