This page has been archived and commenting is disabled.

ECB Confused How To Mask Losses On Negative Yield Bond Purchases

Tyler Durden's picture




 

As we noted last week, Mario Draghi’s move to purchase €1.1 trillion in EGBs at 124% of par may have mitigated market jitters regarding the ECB’s ability to source enough bonds to meet PSPP monthly asset purchase targets, but it also virtually guarantees that the central bank (and perhaps some eurozone NCBs) will be forced to operate from a negative equity position should sovereign spreads blow out. 

We also pointed out that due to the ECB’s explicit willingness to buy bonds with negative yields, the usual “we’ll hold them to maturity” excuse won’t work when it comes to explaining away accounting insolvency. Fortunately, the central bank’s governing council has a plan to deal with the increasing amount of EMU bonds trading with negative yields: “Try to avoid them.” 

Via Bloomberg:

  • ECB said to lack QE Accord on losses from negative-yield bonds
  • ECB Governing Council hasn’t agreed on how to treat losses incurred on bonds with negative yields, according to three euro-zone central bank officials.
  • National central banks might try to avoid buying such securities for now, one of the people says

This of course begs the following question: what happens when PSPP purchases drive yields on all EMU debt into negative territory? 

 

Charts: Citi, WSJ

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 03/09/2015 - 09:19 | 5869071 B2u
B2u's picture

They just need to make up a number and sing everything is great.

Mon, 03/09/2015 - 09:30 | 5869121 y3maxx
y3maxx's picture

Aren't QE losses just another name for (hyper) inflation?

Mon, 03/09/2015 - 09:34 | 5869139 GetZeeGold
GetZeeGold's picture

 

 

Just lie about it.....it works in America.

 

Let me get you started.

 

You can (keep) _____________!

Mon, 03/09/2015 - 09:36 | 5869147 NoDebt
NoDebt's picture

Sounds like it almost time to break a few more rules.

 

Mon, 03/09/2015 - 09:48 | 5869199 Xibalba
Xibalba's picture

Laws...I belive they're called 'Laws'

Mon, 03/09/2015 - 09:49 | 5869202 unplugged
unplugged's picture

we don't need no steenking rules

Mon, 03/09/2015 - 10:36 | 5869344 Grinder74
Grinder74's picture

So if they intentionally do this, it's A-OK.  If I accidentally do this, it requires the SEC to come roaring in and literally bankrupt me.

Mon, 03/09/2015 - 09:20 | 5869077 cnmcdee
cnmcdee's picture

Unintended Consequence - why keep any money in the bank at all, I expect everybody to withdraw their money and put it in a safe.

Can you spell b-a-n-k r-u-n....?

Mon, 03/09/2015 - 09:21 | 5869080 Thirst Mutilator
Thirst Mutilator's picture

Do what you always do... LIE [then go collect your paycheck, & possibly Nobel Prize, for being the mostest awesomest ecconomist everist]...

Mon, 03/09/2015 - 09:20 | 5869081 i_call_you_my_base
i_call_you_my_base's picture

"ECB Governing Council hasn’t agreed on how to treat losses"

How I treat losses on investments is that I acknowledge that the money is gone.

Mon, 03/09/2015 - 09:22 | 5869091 cnmcdee
cnmcdee's picture

Except it's the public's money they are loosing.  I think they reward themselves for doing such a good job in such a calamity naturally..

Mon, 03/09/2015 - 09:30 | 5869127 101 years and c...
101 years and counting's picture

"Except it's the public's money they are loosing"  isnt that the goal of central printers?  force the peasants' money out of their pockets, and up the ladder?

Mon, 03/09/2015 - 09:33 | 5869143 Thirst Mutilator
Mon, 03/09/2015 - 09:37 | 5869150 BandGap
BandGap's picture

For the love of English, it's LOSING, not LOOSING.

Geez.....

Mon, 03/09/2015 - 09:39 | 5869157 GetZeeGold
GetZeeGold's picture

 

 

en Español?

Mon, 03/09/2015 - 12:30 | 5869823 Bananamerican
Bananamerican's picture

your correct

someone has there spell check turned off

Mon, 03/09/2015 - 10:37 | 5869348 Grinder74
Grinder74's picture

-1000 four knot noing how too speel

Mon, 03/09/2015 - 11:45 | 5869617 Hyjinx
Hyjinx's picture

When can we expect negative banker bonuses?  One round of those and NIRP would somehow quickly end....

Mon, 03/09/2015 - 09:20 | 5869084 Xibalba
Xibalba's picture

So doing what the US is forcing them to do will destroy them? What else is new? 

Mon, 03/09/2015 - 09:27 | 5869117 Augustus
Augustus's picture

Seems crazy to claim that the US is "forcing" the EU to have negative interest rates.  US 10 yr rates are well above EU rates so it is not about rate competition with US.

 

EU is making their bad choice on their own.   

Mon, 03/09/2015 - 09:38 | 5869154 lesterbegood
lesterbegood's picture

Perhaps the ECB (EU) is underwritten by the FED?

Mon, 03/09/2015 - 11:06 | 5869438 Augustus
Augustus's picture

Perhaps the Moon is really made from Cheese?

Mon, 03/09/2015 - 09:30 | 5869130 lesterbegood
lesterbegood's picture

Just flip the charts. Presto. Losses are now gains.

Mon, 03/09/2015 - 09:31 | 5869132 JRobby
JRobby's picture

Oh? They are still concerned with accounting rules? How backward?

Mon, 03/09/2015 - 09:33 | 5869140 falak pema
falak pema's picture

its got a name : Panachage ! 

That means "shandy" for the beer drinkers. A touch of negative lime/lemonade with a large dose of positive beer. 

Mon, 03/09/2015 - 09:37 | 5869151 Which is worse ...
Which is worse - bankers or terrorists's picture

https://www.youtube.com/watch?v=5V7yX93FvOI

Kind of like the scene in Young Guns II where the lynch mob shot its own deputy, dontcha think?

Mon, 03/09/2015 - 09:39 | 5869155 Goozar
Goozar's picture

Yeah, but i managed to find some truths about gold trading:

 

Gold declines on all days which contain a "d", "a" or "y".

It declines on all ECB Board meeting days

it delines on both of the FOMC meeting days

It declines on all FOMC minutes days

It declines on all Beige book days

It declines on all last days of the month

It declines on all option expiry dates

It declines on all Futures expiry dates

It declines on all delivery dates

It declines on in the middle of the night asian time

It declines early morning european times

It declnes 8:30 US times and into the exchange opening.

 

To make a long story shory. It mostly declines.

What in the world makes this asset class so hated? The honesty of not being a slave to any Uberlord?

 

 

 

Mon, 03/09/2015 - 10:26 | 5869310 Watson
Watson's picture

>>>
What in the world makes this asset class so hated?
<<<

A few years ago it was dearly loved.
It moved from a long term range of USD 250 - 500 to the giddy heights of USD 1,800 or so, and many said it was going to 5,000 10,000 or even 50,000.

Then the bubble burst.
1/3 down from the top is usually very fast indeed...the only reason it's been much slower is because the last buyers were not poor benighted retail (on margin), but central banks, who don't buy on margin and are not usually forced sellers.

The important point is that any bubble worthy of the name does at least 2/3 from the top (Tokyo equity did much more).
2/3 from the top with gold is about 600 - and still well above the original long-term range.

Watson

Mon, 03/09/2015 - 09:41 | 5869162 londoncalling
londoncalling's picture

common sense time

negative yields on deposits for ordinary people can only happen alongside capital controls

at some point people decide they'd rather hoard cash if it's costing them money to be at the bank

i'm not sure why central banks feel this climate of fear and uncertainty and extraordinary times will usher in a new found confidence in investing any spare capital in productive business

more likely people will want to hoard cash even more

 

Mon, 03/09/2015 - 09:40 | 5869168 Lmo Mutton
Lmo Mutton's picture

There is no loss till you sell, right?

Mon, 03/09/2015 - 09:48 | 5869196 unplugged
unplugged's picture

nope - until your friends stop their money making machine

Mon, 03/09/2015 - 11:08 | 5869450 Augustus
Augustus's picture

No different from empty tuna cans.

Mon, 03/09/2015 - 09:41 | 5869169 Its_the_economy...
Its_the_economy_stupid's picture

the central bank’s governing council has a plan to deal with the increasing amount of EMU bonds trading with negative yields:

 

Hedge w Coke and MCD equities! /

Mon, 03/09/2015 - 09:43 | 5869179 MATA HAIRY
MATA HAIRY's picture

yes, they lose money on each bond, but they will make it up on VOLUME

Mon, 03/09/2015 - 09:47 | 5869192 unplugged
unplugged's picture

"As QE kicks off in Europe, ECB has no plan to account for losses on negative yielding assets."

you had me at "plan"

Mon, 03/09/2015 - 09:49 | 5869203 sudzee
sudzee's picture

Greek bonds look like a screaming buy.

Mon, 03/09/2015 - 09:56 | 5869220 Herdee
Mon, 03/09/2015 - 10:08 | 5869263 juggalo1
juggalo1's picture

Why do they care?  Central banks cannot go bankrupt as long as their sponsoriing countries' economies and governments are intact.  They can lose as much money as they want and just print more.  Their losses and gains all exist in a strange accounting realm of imaginary numbers as ZeroHedge likes to point out when they are playing the opposite criticism.

Mon, 03/09/2015 - 11:40 | 5869595 Edward Morbius
Edward Morbius's picture

Exactly. Their REAL COST BASIS is ZERO, since they are using printed money, so how can they have a REAL loss? The loss is really at the expense of anyone who holds Euros and cash equivalents in Euros (bonds).

Mon, 03/09/2015 - 10:34 | 5869336 farmboy
farmboy's picture

Because this whole QE from the start is designed to bail out Italy/France/Spain/Portugal bondsand not the others ofcourse.

Mon, 03/09/2015 - 10:52 | 5869394 Stained Class
Stained Class's picture

Mask their losses? I'm ashamed at Draghi, former Goldmanite, doesn't know how to take E1.1 trillion and turn it into E0.9 trillion should be a piece of cake.

Mon, 03/09/2015 - 11:04 | 5869429 CHX
CHX's picture

ECB is (h)edged with interest rates derivates, of course... HAHAHA what a shyte show.

Mon, 03/09/2015 - 12:01 | 5869707 joego1
joego1's picture

The whole problem is that all of the graphs are in only two dimensions, what the world needs is a fresh balance sheet in the third dimension. If we simply add a Z axis there is plenty of room for new debt or to shuffle old debt.

Mon, 03/09/2015 - 15:45 | 5870617 gcjohns1971
gcjohns1971's picture

So...

The ECB 'imagines' money to buy something.   I say 'imagines' because there's nothing there other than a bookkeeping entry. Then when the value of the object purchased plummets, which was purchased with, essentially nothing in the real world only an ephemeral accounting entry,  we call it a 'loss'?

How can you lose something (or more properly a 'nothing') that you never had?

What is the mark-to-market value of nothing?

The closest corporate equivalent is the conjuration of new shares, diluting the value of all existing shares.

But the ECB didn't even sell new shares in 'Euroland Inc'. 

When there is no new value backing the new Euro's you can hardly call it a loss when they disappear.

Seems that modern economists are the equivalent of the kid in class who had an imaginary friend...  Always chattering about what their imaginary friend did, and about all their wonderful qualities... but there was never any friend there.   Which is why when children outgrow the 'imaginary friend' they simply shug their shoulders and move on.

Pity the economists and bankers frozen in perpetual childhood.

Do NOT follow this link or you will be banned from the site!