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German Bunds Give Draghi The Finger: 2-Year Hits Record Negative Low -0.39%
As we reported moments ago, Mario Draghi just unleashed another "whatever it takes" speech, this time focusing on the ECB's fight with the "deflation monster" and explaining how the central bank plans to boost inflation and inflation expectations, saying that "while inflation will remain low for a prolonged period, we see it gradually rising back to 2%. The delay is largely explained by the impairments in the transmission mechanism that lengthen the lag between our accommodative policy stance and price developments."
And while the initial EUR response was as expected, dropping about 30 pips (but already rebounding on concerns that the Draghi bazooka may truly be empty this time - after all what else can he surprise with as CA's Valentin Marinov said), German Bunds, especially the short-end, were quick to give Mario Draghi the middle finger and the 2Y has dropped to a quite deflationary all time record low of -0.389%, because all they heard was that the ECB will monetize even more debt.
And a longer view:
However, as a reminder, the ECB has a monetization floor: recall "purchases of nominal marketable debt instruments at a negative yield to maturity are permissible as long as the yield is above the deposit facility rate."
In fact, based on recent calculations some 30-40% of the entire German curve is now trading with too negative yields to be eligible for the ECB's current formulation of QE, and we don't have to remind readers that the biggest risk the ECB's QE faces is running out of eligible securities it can purchase. The private market is scarce enough as is, and explains why Europe is desperate to find politically correct ways to issue much more debt (hint: refugee crisis).
In effect what the German short end is saying is that not only will the ECB slash the deposit rate, from -0.20% to as low as -0.40% or more, but that another massive wave of QE will be unleashed. What this means, of course, is that the ECB will also unleashe another massive deflation-exporting tsunami, which in turn will force not only Japan and China, but soon, the Fed as well, to respond in kind and expand their own "unconventional monetary policy measures" because in the race to the bottom, all that matters is if just one central bank is doing it.
Finally, as for Draghi's contention that more negative rates will stop savers from hoarding money at the bank, he is as usual, completely wrong: as the actual data shows, what happens is that the lower the deposit rate across Switzerland, Denmark and Sweden, the greater the eagerenss of savers to, well, save instead of spend.
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I wonder how low these go when when Mr. Yellen drops overnight below zero. Who would you rather trust with your money? Dr. Schäuble or Barack Obama?
The amount of money held up in the US due to its ZIRP compared to NIRP in Rainbowland is massive. If the US adopts NIRP to compete with ZIRP, the money will flow to the continent where it can be stuck more "safely" with less risk.
I see a massive Real Estate bubble in Germany, Austria, the Netherlands coming -- but specifically Germany.
First, Real Estate is tangible, e.g., its more than a piece of paper. Second as much as Mr. Draghi would love to print the Berliner Stadtschloß he cannot. Thus supply is relativly fixed, and lastly -- most IIs I know logically accept the EUR is on borrowed time, and thus investing into German Real Estate is not only a great way to put large amounts of money into things that cannot be printed, and will always have a value, but it is also a covered EUR short position. When the EUR goes tits up, real estate in Germany is indexed in the new D-Mark or whatever currency Germany uses, which will likely be more than what any Latin based Rainbowland country uses.
For those of you working in this space -- watch many "day dream" projects get funded (e.g., Tower 365 in Frankfurt & Berliner Altstadt Wiederaufbau) as soon as Mr. Yellen drops interest rates instead of raising them.
While I agree with what you say I think if you really expect an end to the Euro and a switch back to Multicultural 'Mutti' rainbowland currency then land and PM are still your safest bet, as you will suffer a lot of losses also on your real estate as it is already overvalued at this stage (QE, exceptionally low IR).
However, it may well be a great investment opportunity to jump on the ride see it appreciate to mind numbing heights and sell your property and switch it to PM before the Euro collapses. That again is a question of timing! ;)
The problem for these II -- the amount of money in the system would overwhelm physical PM supplies within minutes -- if it took that long at current prices. Higher PM prices tell the population something is wrong, whereas high real estate prices tell the average idiot the economy is doing great. Thus the IIs, party to push off the day of reckoning as long as possible will dump into Real Estate. While I agree, if the Fed goes NIRP I think this is the best place to store cash.
Why would any foreigner invest in RE in a country being overrun by desperate refugees from the ME?
http://beforeitsnews.com/conspiracy-theories/2015/11/all-of-your-wars-ar...
ECB will monetize even middle finger given Draghi.
Economists are never short of useless innovation.
It would be interesting to see what's really going on below the surface. Negative swap rates, massive moves in the Fed repo actions, negative rates getting worse, something tells me all is not right underneath the covers. It would be interesting to see the truth, but probably very scary.
Can someone please explain why someone would invest in a bond that will return a smaller amount than that invested?
Is it sexy or what?
Or is it just another stupid aspect of our upside down world?
Or will that bond be worth even more if rates become even more negative? /sarc
It is just about funding governments with CB debt purchases at this point. No one is giving Draghi the finger. That is Draghi. They can say deflation all day and all night. We are still hyperinflating. The US is on the exact same trajectory and will also have their bonds bidnegative by the Fed. Despite all the PR and nonsense, the US government needs free money. The Western governments will also sell every ounce of gold they have before it is over, if they have not already. The central banks will spout 100 reasons for everything they do. But in the end, they have no choice if they want to hold on to their power for a little longer. They just have no choice.
Many investment strategies (think of retirement funds) are required to buy bonds as a portion of what they own. Even as they lose a small amount of money on them their models say that those bonds will still provide insurance in case their money-making equity side tanks. They are right about that until the bubble pops then they will be very wrong. But the biggest factor is one that most of us small fry never think about. Money has to exist somewhere. If you have a LOT of money you can't store it in a bank (do the calculations on the number of banks and multiply by the 100-250,000 insured level [which can be changed by a stroke of a pen]) and your mattress isn't big enough to hold it in paper form. Accounts in the high billions are pretty much forced into bonds because there is no where else to go. We ZHers like gold and silver but do the math on what 50-100 billion in gold converts to. You'd have to build your own repository and hire a lot of guards or else trust that the comex will stay solvent. Losing a quarter percent a year is a deal in those terms.
required to buy bonds as a portion of what they own...
And if one were to buy negative rate bonds off a previous "owner", the purchase price can be negotiated to account for the future value of the instrument as well. It's like the way your brand new Escalade immediately depreciates when you drive it off the lot, somebody's gotta do it.
FUCK YOU, BERNANKE!
Hmmm, Bloomberg just ran this:
http://www.bloomberg.com/news/articles/2015-11-20/14-predictions-for-201...
Problem is, there are no bright minds in finance. Anyone of any intelligence has already been rejected or fired.