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Germany Issues 2Y Note At Record Low Yield Of -7bps
Germany sold EUR 3.34 billion 2-year notes to a desparate-for-collateral, safe-haven-seeking, ECB QE-front-running, deflation-pricing market (with exceptional demand - an elevated 2.26x bid-to-cover) for a stunning -0.07% yield... an all-time record low yield issuance for Germany. We have nothing to add...
Chart: Bloomberg
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Charles Ponzi himself would be proud.
Take out a 6 month loan, and time will fly by like nothing.
<insert fry.gif>SHUT UP AND TAKE MY MONEY!!!</fucking ponzi>
The turds in the bowl are all finally lining up for the big swish exactly like TPTB want it to happen. US rates can't go negative unless the Euro and GB go there first. Simple symantics. Once the medium term USTs crash 'the zero barrier' the call for a new reserve currency will no longer be muted, and SDR's as the new reserve currency will become a reality.
In short, the absurdity of this cirus is reaching a fever pitch. Someone please pass me the bread.
So if you short these bonds do you earn interest of .07%?
John Exter would say you are right on track Germany.
Next panic to cash.
Then hyperinflation with gold to the moon.
http://1goldinvestment.com/tag/john-exter/
http://www.24hgold.com/english/contributor.aspx?article=753744516G10020&...
A remarkable comment from a person who served on the Board of Governors of the Federal Reserve:
John Exter (1910-2001) warned, “The marketplace is a crime and punishment world, and this Federal Reserve credit expansion is the greatest monetary crime of all time. Accordingly the punishment will be far and away the greatest punishment of all time.”
Yes, yes, but when can I borrow money at negative interest rates???
You'll really see the economy pick up then.
Take a debt note, add a negative interest and you'll shit profits.
It is not borrowing.
It is a de facto TAX...on those institutions that require liquid collateral. Take down the leverage, and the tax is no longer needed (because you do not need collateral to hypothecate).
Like all taxes, though, this tax will get passed on the lowest and weakest classes.
It looks like the depths of fiat hell is a negative number.
A verse on the world of tomorrow
When fiat brings infinite sorrow
When safety for cash
Is government trash
Worth less than the money they borrow
I was just thinking the other day that I haven't seen you post in a while.
The Cogs are probably busy with their own website ... I have the link bookmarked here someplace.
I'm still creeping around Doc.... ;-)
There are lots more negative numbers below that one.
Of course, you eventually get to the point that you might as well put the money in a furnace.
LOL
Of course that presents a second problem. How do you burn digital bits and bytes?
They're Germans
They excel at burning things in furnaces...
They'll find a way
Pssst......you have to wait until after the war to start making up stories like that...
No one would buy this as an investment. Therefore it is the definition of a bubble.
This is merely a mechanism for central banks to act as printing presses on steroids for governments. It is the same deal central banks are giving private banks by paying them interest in deposits. I am sure central banks think they discovered some great new magic source of funding. No. It is just hyperinflation on tap, and fukn stupid. Only someone with no experience in reality would think this will do anything but completely destroy economies.
following your logic, buying gold is not an investment. and gold is simply a multi-millennium bubble (in a way... it is)
what about... saving? which is a time preference exercise? similar to finding a parking space for your current purchasing power in favour of your future purchasing power?
the real question is how leveraged the buyers of those bonds are, and how many times they can rehypothecate that stuff, and how much money they can do by shorting that stuff on the side, all legal (depending where) and "not naked"
Bonds that you pay interest on are not savings. I don't see the comparison to gold becasue it is money and not a bond. If someone offered to sell me a gold backed bond where I paid them interest in gold every month, I wouldn't buy that either.
I was lucky to finish/repost with the last sentence added, which I think might give you a better answer
gold is money, agreed. and an asset. but it's also a currency, and has to compete with currencies and bonds on the currency plane. where a solid, trusted bond can do all those wonderful tricks... if you are a megabank with a foothold in the City
but there is an additional reason: liquidity preference. and a 2y German Bond is terribly liquid, and can be used as an anchor for plenty of delightful exercises in derivatives packaging
and, last but not least, Draghi's merry men of the ECB created all this wonderful liquidity that gets taxed if you keep it there at the ECB
I think that is the common explanation. I don't buy it, no offense to you for repeating it intended. I think these bond prices are engineered for benefit of the bond issuers because they cannot afford interest and need endless cash. This is the magical double whammy of getting paid interest for borrowing money. But it amounts to notching up the central bank printing press. It will work itself out in the end. I am not partaking in banker logic. Charles Ponzi's scheme actually made more sense on paper than this "negative interest rate bonds are money" logic. And I am not kidding about that.
These fkheads will never get me to say 2+2=5.
I think my main explanation is not that common: the FED went ZIRP. this forces the whole frigging world to "do something", which in the case of the eurozone resulted at the beginning with a huge wall of funds crashing here. hence the current ECB's NIRP
but eurozone politicians can't complain too much because this results in easier sovereign refinancing, even if this makes the Bund's market look definitely loony, as you noted. note that this explanation is completely compatible with my previous one
They aren't being bought for yield.
They're being bought for appreciation.
They're bought in order to be sold to the greater fool when the next 2-year issue's yield goes to -10bps...
Gold is more liquid (in small(er) numbers) than the a 2 Jahre Bund is.
I could put up 5 OZ of Gold on eBay Kleinanzeigen and it would be gone by this afternoon. I doubt anyone would purchase a Bund off eBay Kleinanzeigen.
That being said -- in larger quantities Bunds are more liquid than Gold is. Why? Its not because one is a superior financial instrument, but logistics,
Gold is heavier than a Bund is.
Gold is more difficult to store safely than a Bund is.
Gold in quantities of Billions of € is much more difficult to sell than Bunds in these quantities.
But that being said -- an INTEREST BEARING INSTRUMENT having a negative real interest rate is truly insane. If you fail to see this, then I would assert you might be a bit more blearly-eyed than you think yourself to be.
then it isn't an interest bearing instrument anymore, or not only that. which reinforces my argument that the buyers have an added reason to buy them, particularly if they can use it in various repo deals and derivative instruments, including the "structured financial products" that Germans are so fond to buy (aka "Strukis")
having said that, let's say Country A has an expected price inflation of 2.8%, and Country B has an expected inflation of 0.8%
all things being equal, a 1Y bond from A could have a yield of 3% and one from B could have 1%, and nobody would cry wolf
now, if the expected price inflation becomes negative in Country C, at minus 1%, what happens, all things being equal?
Haus, you are a young man, and probably like the new BMW i8. Now, do you expect it to be cheaper or more expensive, next year, in EUR?
as a reminder, minus 7 bps is not that far from zero
I am not a bond guy by any stretch of the imagination (and I was blessed with a very creative one), but in the simple example you presented, you seem to imply bond rates in Country C would be -.8%. This would be deflation, but not quite as deflationary as the economy.
I do have a curious question though; does the Bundesbank get cash flow from their bond issues (i.e. coupon payments of negative interest) before the principal is due or is the principal just lower when the bond is due?
I can see the temptation on paper to start down this path to reduce overall debt in the system. Topically, it seems completely insane, yet I have done a piss poor job of calling the end of this BS circus since 2008. The markets are so fake, I am not sure they even have real players anymore. Everyone is engineering outcomes.
In that light, is it possible for them to continue to engineer outcomes and head down the NIRP path and absolve the spend thrift governments of their indebtedness?
No doubt the people will suffer, but like they give fuck all about that anyway. They just want to keep their host alive as best I can tell.
Regards,
Cooter
"gold is money, agreed. and an asset. but it's also a currency, and has to compete with currencies and bonds on the currency plane."
Gold does not have to compete with anything. Gold is money. If you want money you buy gold, or silver.
There is a big difference between something having value, as for example a bond, and something being money, which a bond is not.
Crazy, so people are paying to lock up their money and are guarenteed to get back less in 2 years time, even before taking inflation into account?
Is that right?!?!
Good thing they only needed a few billion.
They will make it up in volume....
Negative rates says a lot more about the perceived safety of banks than it does about investment returns.
When you have BILLIONS to protect, deposit insurance like FDIC doesn't help. Gold is too unweildy and you couldn't buy enough of it without becoming the whole market.
So where do you put it? In a bank that might slide off the table tomorrow, or with a government that has near limitless ability to borrow and tax (and print) to pay you back?
It's not about return on investment. It's about return OF investment. And right now, that means you PAY for safe-keeping.
Bingo! Return OF Investment is a relevant thing, too. And when you own it... you can short it, even in the eurozone that dislikes "naked shorts"
That's a fair point, but if people are willing to accept a negative rate of return on that capital then they must be very worried about something otherwise they would be putting it elsewhere?
Correct. When you have so much money that you don't care about your rate of return (or it's not your money to risk, like a company with large cash holdings on their balance sheet), the only thing left that matters is not losing it. (Or at least not losing more than .07% per year)
"... people are paying to lock up their money ..."
Believe it or not, there are individuals and corporations with a lot of cash.
The question is what do you do with that cash? Specially if you want it in a very liquid form.
You have to "park it" somwhere, hopefully in a very safe "parking spot".
German bonds appear to be a "safe parking lot" at this time. And when you are in a "safe parking lot" you have to pay for your parking spot.
As an economist, you should understand that if inflation is negative (deflation) then a minus 7 bp yield could actually have a positive real return.
You need to change your nickname...
Meh..
Gold at -0-% looks better..
why not make it -25%..you could make money that way...
Maybe you could, the rest of us, not so much.
There's nothing like investing in something that you know up front will lose money. I'm all in! /sarc
Well it is a representation of our congress critters.
you know up front you will ONLY lose a set % of your money... THAT is the point. Think about what that means, and you start to realize where things are!
You assume you only lose a certain % of your money. More likely you'll lose a lot more. If there ever were true deflation governments couldn't pay you. In the surety of inflation you'll get less. Count me out.
WTF, Can someone plesae explain to me how that works......I mean since you are buying a bond with negative interest, does that mean you write them a check for the coupon payments?!?!? Or does it imply you will receive 0 coupon payments and just reeive someting less than your principal back at the end of the time??? Secondly why the fuck would anyone do that?
Yes
You do it if you are already rich, are not seeking yield but instead security, and don't consider the banking system secure.
The security of the tax base of the Republic of Germany (a country that makes things the rest of the world wants to buy, without bribes/subsidies/threats) is substantial. You can't just 'hide' millions of EUR notes under the bed - there is a fire and theft risk, and appropriate insurance (and strongroom) may cost more than 7bps (and probably still result in a fight with the insurance company if you make a claim).
Negative rates on US t-bills were common in the 1930's, for the same reason.
What I do find suprising is that the negative rates are on pure EUR obligations.
I would prefer a claim on the EUR amount now, or _whatever currency Germany is using at maturity_.
I do not doubt Germany's strength.
What I fear is the possibility that, in order to sort out other problems, events happen that make Germany return to the DEM.
Like the rise of AfD.
Watson
WTF, Can someone plesae explain to me how that works......I mean since you are buying a bond with negative interest, does that mean you write them a check for the coupon payments?!?!? Or does it imply you will receive 0 coupon payments and just reeive someting less than your principal back at the end of the time??? Secondly why the fuck would anyone do that?
Yep...everything is just fine and normal...don't you worry.
So I should go long leather trench coats and yellow paint?
Good thing guys! Now you can get an even better deal. Pay me only 0.05% of the money and I will hold it safe for as long as 20 years!
Minimum investment 1b EUR, but if you got big tits I´ll make that 1m.
Line up starts here:
I was always told in kindergarten, you can not go below ZERO .....guess I was lied to.
Who is the buyer? Who the fuck is the buyer? Beside central banks no one ever would buy such shit. But I'm a bit afraid that one day we will hear that the greates pensions funds were into this shit..
Only a government buyer would take a negative interest rate. That is absurd!
Wake me when tuition goes down.
You are in for a long nap.
The BigEducation bubble is one of the most fundamentally important, entrenched, government-fueled corruptions going.
With millions of parasitic Americans fully on board, and benefitting from it.
banks are buying these negative bonds because parking reserves with ECB is even more expensive
What about NOT parking reserves with ECB?
Exactly.
Let me get this straight. A country that cannot cover its expenditures, that has to borrow, that has lousy economies around it and relies on Russia for gas can actually borrow at a negative rate of interest? LOL
The reality is that there are too many variables to take into account so as to determine as to whether this is insanity at its best or something else.
If we are to see a massive decline in asset values again then these bonds might make sense.
Germany covers it´s expenditures with tax revenues. Germany´s debt is falling, in real terms and in relation to BNP even more. And there´s new legislation that prohibits Germany from producing new net debt in regular times. In fact Germany is just replacing/refinancing old debt with high interest rates by new debt with low, almost none interest rate.
With the caveat that many of Germany's customers are borrowing money to make ends meet.
Remember: the US was manufacturer and creditor to the whole freaking world for years after WWI and we ended up in a big fat depression.
A profitable business has to have customers who can pay, so when this shit hits the fan ...
Regards,
Cooter
"If someone offered to sell me a gold backed bond where I paid them interest in gold every month, I wouldn't buy that either."
Mann's Boudoir Car Company - Sinking Gold Fund Bond - Principal $1000 Due July 1906 - Coupon $30 in gold coin.
I piicked this up at a flea market - 6 of the forty coupons are missing. Nice looking bond with coupons attached. I bought it for $3.
Germany can get negative interest rates because people are willing to pay for the safety of getting their money back. That tells you the fear in the current environment. What if you have your money parked at a bank at you get a Bail-In call? What if you are afraid the stock market is overvalued and you want to put your funds somewhere. You average Joe can buy some gold, hold some physical cash or some physical asset, but what do you do when you are worth millions and billions?
It will be interesting to see how negative they can go before the big money balks.
EAT BONDS
The only way to make money investing in negitive interest bonds in to use a lot of leverage.
"Sure, we lose money on each individual sale - but we make it up in volume!"
Things cost less, therefore you get to keep less of your money.
Money scheme to push assets ever-higher.
The Central Banks want to inflict infinte pain on savers.
Borrow to the max and transfer all your borrowed wealth to gold and silver. Then default.
The banksters will have ever-more non-performing loans to add to their off-the-book losses.
I don't get it. Aren't Euro note cash equally good collateral? I didn't see that this was an inflation adjusted bond or price. Wouldn't it be cheaper to just give cash as collateral? Are they being charged more for excess reserves by the ECB? But collateral aren't excess reserves are they? I just don't get it...
How long before governments declare that all non-sovereign bond holdings are subject to a 10% per year tax? It's important to remember to pay your taxes. It's why government needs you.
bonds are another papper like usa dollar
It's a dream come true! I've always wanted to pay Germans to hold my money! Bullish!!!
I pay +.07% if you loan me !
Please contact me !
I am as reputable as Germany !