Why does Anyone Buy Negative Interest Bonds?

[Dekster]

I support stagnation. In fact, I support purposeful, managed degrowth. America consumes too much. The pursuit of more dollars to pay for too much is ruining people's psyche.

/—-/ You want stagnation? Move to Cuba and leave us the fu*k alone to prosper. You idiot

I want degrowth. American "prosperity" is an illusion created by a hyper-inflated stock market. As for Cuba, no luck. Trump has greatly restricted people's ability to go there

How unimaginative of you. I'm pretty sure you could just walk across the Venezuelan border and live in the Utopia you desire.

Venezuela is not next door to Virginia.

You can easily fly to Colombia and then cross the border. Jeebus, how do you survive with such a lack of initiative?

I will take your word for it. I am sure you are an expert at sneaking across borders, amigo.

 

[boedicca]

/—-/ You want stagnation? Move to Cuba and leave us the fu*k alone to prosper. You idiot

I want degrowth. American "prosperity" is an illusion created by a hyper-inflated stock market. As for Cuba, no luck. Trump has greatly restricted people's ability to go there

How unimaginative of you. I'm pretty sure you could just walk across the Venezuelan border and live in the Utopia you desire.

Venezuela is not next door to Virginia.

You can easily fly to Colombia and then cross the border. Jeebus, how do you survive with such a lack of initiative?

I will take your word for it. I am sure you are an expert at sneaking across borders, amigo.

No, I believe in the rule of law. You support regimes which don't. But worst of all, you are incredibly boring. So, toodles.

 

[Mac1958]

I can think of two reasons:

First, there are many institutional investors who have to buy bonds no matter what, because it's in their charter to do so and/or they have to use them as collateral.

Second might be some kind of weird foreign currency arbitrage, where the yield on the bond is less important than anticipated movement between two currencies.

Is sure does seem counter-intuitive, that's for sure.
.

 

[Toddsterpatriot]

I can think of two reasons:

First, there are many institutional investors who have to buy bonds no matter what, because it's in their charter to do so and/or they have to use them as collateral.

Second might be some kind of weird foreign currency arbitrage, where the yield on the bond is less important than anticipated movement between two currencies.

Is sure does seem counter-intuitive, that's for sure.
.

Eurozone banks buy them to make their risk adjusted capital requirements.

 

[The Banker]

This is something I cannot make sense out of. So, have at it.

There's more to a bond than just the small interest rate gain or loss that comes with them. Bonds are a commodity essentially like gold. The majority of people buy bonds because they think they will go up- based on economic factors, or chart patterns- so they know they can make money off the trade.

They buy bonds now, the ECB increases stimulus, and the value of the bonds goes up, so they sell said bonds to other people and make a profit.

That is why they buy bonds that have a negative yield.

 

[Picaro]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

 

[Socratica]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

If you're a fixed income investor, you care about the real return. Not the nominal return.

 

[Toddsterpatriot]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

They are also discounted, and nobody is paying the face values, at least at the wholesale levels.

If the rate is negative, they're paying above face value.

 

[Picaro]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

They are also discounted, and nobody is paying the face values, at least at the wholesale levels.

If the rate is negative, they're paying above face value.

Wrong.

 

[Picaro]

https://seekingalpha.com/article/4274437-expansion-assets-negative-nominal-interest-rates

Buried in the Weekend section of the Financial Times is a report that the aggregate value of assets that earn negative nominal yields has substantially expanded since the beginning of 2019 and has reached a new high. So, on January 1, 2019, the value of these assets was at $8.3 trillion. As of six months later, it had reached $13 trillion, a more than 50 percent increase. There are fewer assets around that have negative yields than a few years ago, but the amount of money in them has grown, and the depth of some of the negative interest rates has deepened. It used to be said that -0.5 percent was a lower bound, but some Swiss franc bonds are down to -0.8 percent. The main ten-year German government bond's yield has fallen to -0.4 percent.

I didn't realize they were growing that much. No surprise at the Swiss rates, though.

 

[Toddsterpatriot]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

They are also discounted, and nobody is paying the face values, at least at the wholesale levels.

If the rate is negative, they're paying above face value.

Wrong.

Explain my error.

 

[Toddsterpatriot]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

They are also discounted, and nobody is paying the face values, at least at the wholesale levels.

If the rate is negative, they're paying above face value.

Wrong.

Did you ever figure out how to buy a negative interest rate bond without paying above face value?

Let me know...…..

 

[Toddsterpatriot]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

They are also discounted, and nobody is paying the face values, at least at the wholesale levels.

If the rate is negative, they're paying above face value.

Wrong.

Still nothing?

 

[Picaro]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

They are also discounted, and nobody is paying the face values, at least at the wholesale levels.

If the rate is negative, they're paying above face value.

Wrong.

Did you ever figure out how to buy a negative interest rate bond without paying above face value?

Let me know...…..

Read a book on how bond markets work. We've established long ago you have no idea how anything to do with business, finance, or markets work, you just think you do; playing " I Touched You Last!!!' with dumbasses is something I do in my spare time when nothing else is going on.

 

[Darkwind]

Sounds like a scheme on the order of the derivatives on mortgages. We all witnessed how well that worked out.

 

[Darkwind]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

They are also discounted, and nobody is paying the face values, at least at the wholesale levels.

If the rate is negative, they're paying above face value.

Wrong.

Did you ever figure out how to buy a negative interest rate bond without paying above face value?

Let me know...…..

Read a book on how bond markets work. We've established long ago you have no idea how anything to do with business, finance, or markets work, you just thin you do.

Really?

So if I buy $100 of a negative bond and it constricts by 1% over the first year, that bond is now worth $99.00.

I paid MORE than the face value of the bond's final value.

 

[Toddsterpatriot]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

They are also discounted, and nobody is paying the face values, at least at the wholesale levels.

If the rate is negative, they're paying above face value.

Wrong.

Did you ever figure out how to buy a negative interest rate bond without paying above face value?

Let me know...…..

Read a book on how bond markets work. We've established long ago you have no idea how anything to do with business, finance, or markets work, you just think you do; playing " I Touched You Last!!!' with dumbasses is something I do in my spare time when nothing else is going on.

Why do I need to read a book for you to explain my error?

Or just admit I was right.

 

[Picaro]

Sounds like a scheme on the order of the derivatives on mortgages. We all witnessed how well that worked out.

It's the natural result of having huge surpluses of money sitting at the top of the food chain with nowhere to go, nothing to absorb investments with any returns worth locking up long term capital. It's essentially a storage fee for those who need them in some sort of stable currency and a banking system, which isn't nearly as common as some here seem to think, so, they offer instruments paying a small negative interest rate. It's not rocket science; Swiss Francs, Euros, and U.S. dollars are popular havens. Note the big increases in foreign investments in the U.S. since the tariffs were imposed, and the factories fleeing Red China, and the money fleeing Red China's banking systems.

 

[Picaro]

They aren't 'negative interest rates' if they're denominated in, say, U.S. dollars or Euros versus, say, Red Chinese yuans; they're excellent hedges for those with lots of unstable currencies, like rubles and the like. Contrary to popular belief, even with the ridiculously loose GAAP rules we have now there isn't an unlimited supply of solid convertible paper out there available to those in less than stable countries. They are also discounted, and nobody is paying the face values, at least at the wholesale levels. A 'loss' of 1 or 2% a year is probably less than they would lose to inflation and currency devaluation losses if left in a govt. bank. Singapore's banks are a major retail outlet for them. I'm sure there are more than few big customers in Hong Kong for them right now.

They are also discounted, and nobody is paying the face values, at least at the wholesale levels.

If the rate is negative, they're paying above face value.

Wrong.

Did you ever figure out how to buy a negative interest rate bond without paying above face value?

Let me know...…..

Read a book on how bond markets work. We've established long ago you have no idea how anything to do with business, finance, or markets work, you just think you do; playing " I Touched You Last!!!' with dumbasses is something I do in my spare time when nothing else is going on.

Why do I need to read a book for you to explain my error?

Or just admit I was right.

Why should I school you for free? It's obvious you never read anything now, so why bother with your ideological rubbish just because you ask?

 

[Darkwind]

Sounds like a scheme on the order of the derivatives on mortgages. We all witnessed how well that worked out.

It's the natural result of having huge surpluses of money sitting at the top of the food chain with nowhere to go, nothing to absorb investments with any returns worth locking up long term capital. It's essentially a storage fee for those who need them in some sort of stable currency and a banking system, which isn't nearly as common as some here seem to think, so, they offer instruments paying a small negative interest rate. It's not rocket science; Swiss Francs, Euros, and U.S. dollars are popular havens. Note the big increases in foreign investments in the U.S. since the tariffs were imposed, and the factories fleeing Red China, and the money fleeing Red China's banking systems.

Seems that similar logic was used in the housing bubble that caused the great recession.

Either way, I don't have the time right now to get into an in-depth analysis of this.