Deposit Confiscation Fears Drive Bund Yields Negative For First Time This Year

Tyler Durden's picture

If you had a deposit greater than EUR100,000 in any peripheral European bank, where would you place it (assuming it was not already under some anti-European Union capital control)? It seems we have the answer - German 2Y Bund yields just went negative for the first time this year as investors and savers scurry for safety...


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Political_Savage's picture

I admit it, I'm a idiot. I've always wondered how yields go negative. I've never understood the concept, but i'm sure it's easy. Anyone care to teach a man how to fish?

Stackers's picture

Yeah, so do negative yield bonds come with a payment bill attached instead of coupon and you have to send them money every month ? How the hell does that work ?

HulkHogan's picture

I'm waiting for car loans to go neg. They can pay me to drive around in a Prius.

scatterbrains's picture

At some point Benny B is going have to pay folks to hold some of that SPY he keeps devouring.

SeverinSlade's picture

So just to recap: Russian oligarchs pulled their money out of Cyprus and opted to pay Germany (the very sovereign that demanded the confiscation of their private property) to hold their cash? 

HoofHearted's picture

The idiots are the ones taking the negative yields. Some of us prefer to hold some barbarous relic that has no coupons attached...

Frozen IcQb's picture

My best guess is that the drop in German yields are not Russian in origin. The EUR.RUB cross took a plunge last week where I suspect the cash got repatriated to Rubles. IMHO.


SeverinSlade's picture

"I'm waiting for car loans to go neg. They can pay me to drive around in a [fag-mobile]."

Fixed it for you.

LawsofPhysics's picture

Wake me when BofA will pay me to take out a loan.  "winning"

flacon's picture

Cypriots have to PAY 40% of their deposits to the banks just to have the principal kept "safe". 

LawsofPhysics's picture

That's my point, negative interest rates for them, not for you.  Roll the motherfucking guillotines already.  I wonder how many fees being supported by the theft of those savings?  Long all physical assets and sharecropping.

ILLILLILLI's picture

I'm thinking about building a line of heavy-duty guillotines that can stand repeated use with a short duty-cycle.

In a nod to technology, there will be a upward facing display screen and webcam that lets the guest see their face AND, upon impact, it automatically posts an animated GIF of the event to their Facebook page. Of course the display will be rated NEMA4X so it can be hosed off prior to the next guest...

thisandthat's picture

Why waste good money on guillotines, when chainsaws work so well.

kaiserhoff's picture

You've never tried to sell a time share?

Cdad's picture

That's the price of having the FED protect your big pile of cash...when the FDIC can no longer insure you because you are a whale  [aka you are J. Dimon].  Since you are not J. Dimon, you are left with said FDIC's promise to cover your deposits...which it does...until it doesn't [see Europe].   

Typically, you see whales lining up for the protection of negative interest rates when they know that the gig is up.  They will happily swallow negative interest rates if the government promises to protect their principle. Netflix, I guess? 


NoDebt's picture

The total you get back in coupon payments and face value at maturity is less than you paid for it on the open market in the first place.   Price and yield move opposite of eachother. 

Fer' instance, if you buy a 3% coupon bond at "100" (face value/par) you get the exact coupon rate.  If you buy it for 110 (at a 10% premium) you net LESS than the 3% coupon rate.  Pay high a high enough price for a bond and you can actually get to the point where your net return is NEGATIVE. 

All of this assumes you hold it to maturity.  If, however, you don't mind paying a premium because you think somebody else will pay an EVEN HIGHER PRICE THAN YOU DID.... well, then you're a bond trader, my man!


rubearish10's picture

Ben and Dud will always pay a higher premium!

maneco's picture

Basically if you buy a German 2yr note in the secondary market you'll be paying above par or 100. At maturity you will get 100 or par so you will lose on your principal and the tiny coupon that you are receiving will not cover that loss. That is how you get the negative yield despite receiving a coupon.

Stoploss's picture

                                                                              ** NOTE TO CENTRAL BANKERS **



Yall r fucked..

SpiceMustFlow's picture

What was once thought a physical impossibility, we now present the monstrous neg real rate bond in its natural habitat. Now what I'm gonna do is stick my thumb in the bond's cloaca, it'll really piss it off.

dtwn's picture

Upvote for using cloaca and a financial term in the same sentence.

Schmuck Raker's picture

If a bank account only offers a REAL return of -40%, a bond offering -1% looks pretty good. Assuming you don't know what 'gold' is.

Pareto's picture

Excellent responses to our friend above.  And just because EVERYBODY at CNBC says the bond market is a bubble, is just another reason why 2's and 10's will fall below1%.

JPM Hater001's picture

Ok, I'll bite since we're confessing here...


What does "2's and 10's will fall" translate into in english?

LawsofPhysics's picture

The U.S. treasury bond.  The ten-year has often been thought of as the benchmarket for capital costs.  The Federal Reserve Bank and their primary dealers have been the only significant players in that circle jerk for quite some time now.  These rates are supposed to represent the "true cost of capital".  Should that cost go up (i.e. the yields go above 2%) America defaults because the treasury won't be able to fund the current budget, much less the interest on the debt or the deficit).

dtwn's picture

So will the US endgame become apparent when Gross/Pimco start selling their bonds?

LawsofPhysics's picture

Please. Rates will never be allowed to rise and folks like PIMPCO are placeholders for 401k sheep.

Johnny Utah's picture

2's and 10's = yields on 2 year and 10 year gov bonds (probably US treas or German bunds) will fall below 1%.

kaiserhoff's picture

Exactly SR, and usually a sign of full blown depression, dead ahead.

Not so much hard money this time, as scared shitless money.

ar01's picture

Yield is a function of price, Basically the price of the 2Y Bund has gotten so high that, while you still get a coupon payment, you are paying above par for the bond. It's basically like paying $105 to get $100 back, so the net yield is negative. 

Political_Savage's picture

Thanks - that makes sense.

Political_Savage's picture

As a follow up, is that when a bond is trading "special" in repo?

smlbizman's picture

my guy calls it vig....

rufusbird's picture

Put in to dollar terms, it would be similar to buying a one year treasury bill that matures in a year at $10,000 for $10,006.00

Not a bad deal considering some other alternatives. You could make a profit if yelds go even more negative. Say to

-0.01 percent would sell for $10,010. At minus one percent it would be worth $10,100.

Considering the safety and liquidity issues. It is not illogical for some to consider. Like if you are parked in a southern E. Bank!

Of course there are better things around. A reallignment is occuring in which it will be more favourable to be a bond holder in a banks than a big depositor.



ejmoosa's picture

Calculate REAL inflation and your yield is even worse more negative.

Now that is some shrewd money management.

What sort of salaries are being earned by those that think this is smart investing?


LawsofPhysics's picture

Better get Bill Gross on the line.  

Quinvarius's picture

A bank that hold Bunds needs a lot of money.  So the ECB bids them up to a stupid level, allowing the bank to sell for a profit--Or some other mutation of that scenerio.

Mark Urbo's picture



Old Version:

Give a man a fish and he will eat for a day.

Teach a man to fish and he will eat for a lifetime.


Updated Version:

Give a man a welfare check, a free Obama phone with unlimited minutes, free internet, cash for his clunker, a Chevy Volt, food stamps via EBT card, free housing, free contraceptives, free healthcare & medicaid, ninety-nine weeks of unemployment, free medicine, forgive his student loans and give him an honorary degree for just trying, buy his “art”, give him a living wage, and show him where to go so the nanny state can wipe his a$$ for him when it comes to any personal responsibility…

..and he will vote Democratic the rest of his life…              ..even after he's dead.



Dewey Cheatum Howe's picture

Someone still has to pay for it...

ParkAveFlasher's picture

I know plenty of Republicans who are absolutely parasites of the state.

YHC-FTSE's picture

We've done the twilight zone explanation of a debt that pays for itself. It seems to be the fashion these days. I think Bruce Krasting did an article about Swiss bonds last year on the same theme, but don't ask me to find the link - I have enough problems typing on a tiny phone screen using predictive text that keeps on swearing at me.

Johnny Utah's picture

Say someone buys a 1 year zero coupon bond for $1,000 and it yields 5%. At the end of the year, the payment the investor receives is $1,050. If they turn around and sell you the same bond for $1,100, you now have a negative yield. Bonds can have a negative "real" rate after adjusting for inflation too, but if we did that, all bonds would have a negative yield and this would be a non story ;) happy hunting!
~ Johnny Utah
Ohio State Buckeyes All-Conference

firstdivision's picture

Simple, the rate you're receiving minus CB inflation rate.

Clayton Bigsby's picture

Since yields and prices move inversely to one another (think see-saw - one goes up, the other goes down), in flight for safety, prices get bid up so high by people scrambling for the same assets, that it actually pushes the yield negative....

spastic_colon's picture

who cares as long as equities close green for the quarter /s