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ECB Confused How To Mask Losses On Negative Yield Bond Purchases
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
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They just need to make up a number and sing everything is great.
Aren't QE losses just another name for (hyper) inflation?
Just lie about it.....it works in America.
Let me get you started.
You can (keep) _____________!
Sounds like it almost time to break a few more rules.
Laws...I belive they're called 'Laws'
we don't need no steenking rules
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.
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....?
Do what you always do... LIE [then go collect your paycheck, & possibly Nobel Prize, for being the mostest awesomest ecconomist everist]...
"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.
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..
"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?
There's #WINNING
& there's #LOOSING http://s43.photobucket.com/user/canadiansentinel/media/obamalookinggay-1...
For the love of English, it's LOSING, not LOOSING.
Geez.....
en Español?
your correct
someone has there spell check turned off
-1000 four knot noing how too speel
When can we expect negative banker bonuses? One round of those and NIRP would somehow quickly end....
So doing what the US is forcing them to do will destroy them? What else is new?
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.
Perhaps the ECB (EU) is underwritten by the FED?
Perhaps the Moon is really made from Cheese?
Just flip the charts. Presto. Losses are now gains.
Oh? They are still concerned with accounting rules? How backward?
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.
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?
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?
>>>
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
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
There is no loss till you sell, right?
nope - until your friends stop their money making machine
No different from empty tuna cans.
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! /
yes, they lose money on each bond, but they will make it up on VOLUME
"As QE kicks off in Europe, ECB has no plan to account for losses on negative yielding assets."
you had me at "plan"
Greek bonds look like a screaming buy.
Banksters...http://kingworldnews.com/
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.
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).
Because this whole QE from the start is designed to bail out Italy/France/Spain/Portugal bondsand not the others ofcourse.
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.
ECB is (h)edged with interest rates derivates, of course... HAHAHA what a shyte show.
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.
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.