Negative Interest Rate Bonds

Discussion in 'Economy' started by Liability, Jul 9, 2012.

  1. Liability
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    Liability Locked Account. Supporting Member

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    Drudge is presently headlining the French selling bonds at a very slightly NEGATIVE interest rate.

    I did not major in Economics.

    My question is, therefore, maybe "basic." I dunno.

    But if I grasp this correctly, it means SOME investors are willing to pay interest on money lent. :confused:

    So, I lend you money. As you pay me back the principle in installments over time, I GIVE you a small interest payment on the remaining balance.

    Why would anybody choose to do this?
     
  2. TakeAStepBack
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    TakeAStepBack Gold Member

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    You have it right. the answer is, noone. unless they is hope the country turns around and the bonds gain interest on the long term.

    ZeroHedge posted a while back about Operation Twist and the feds flow of asset purchases. The selling of short/medium mature bonds for extra long mature works out only if the fed continues to buy asset - indefinitely. Otherwise, the long end of the mature curve turns negative, which means that anyone holding them will ditch them because they literally have to pay fo rht eholding. It's economics on its absolute head.

    We're gonna be in this boat too eventually without a change.
     
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  3. Trajan
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    Trajan conscientia mille testes

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    inflation hedge?
     
  4. Quantum Windbag
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    Quantum Windbag Gold Member

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    Left wing hope and change meet economic reality.
     
  5. TakeAStepBack
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    TakeAStepBack Gold Member

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    Interest rate - Wikipedia, the free encyclopedia

    It's essentially a tax on cash holdings. With the option to buy stock (strong stock) at higher rates. It's literally the equivelant of confiscation and only works for those who are willing and able to take a stock and not hold cash.
     
  6. BillyV
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    BillyV Antidisestablishmentarian

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    According to the Wall Street Journal "Investors are so nervous about the potential loss of capital that they are willing to pay an interest rate just to protect their money."

    UPDATE: French Yields Turn Negative As Investors Seek Refuge - WSJ.com
     
  7. Liability
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    Liability Locked Account. Supporting Member

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    Wow. Wouldn't it be safer to buy and hold some tangible assets?
     
  8. TakeAStepBack
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    TakeAStepBack Gold Member

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    Yes.
     
  9. Trajan
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    Trajan conscientia mille testes

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    this ...is the money shot;)

    --Spanish, Italian bonds under pressure ahead of meeting

    --Spanish 10-year bond yields back above 7%

    Italian 10 years are back above 6%...
     
  10. Staidhup
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    Staidhup Gold Member Supporting Member

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    So GOLD will rebound from the recent declines until of course they pass an FDR style law prohibiting ownership. On the other hand equities may will get a much needed push.
     

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