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Swiss Debt Is Now Repaying Itself
The Swiss National Bank may have pegged the EURCHF (and as noted earlier, is progressively accumulating losses defending the barrier - even as EURCHF options are leaning further and further towards the peg breaking), but what about its bonds? At the current rate, Swiss debt, which is quite negative, with 2 year bonds now trading at record NEGATIVE rates, will repay itself quietly in a few short decades: ahhh the benefits of compounding. And for an example of how this is done, hours ago, the government issued debt at a rate of 0.62%. Oh sorry, we forgot the negative sign.
Swiss government issues debt at negative interest rate as investors seek safety of franc
By Associated Press, Updated: Tuesday, May 29, 9:50 AM
GENEVA, Switzerland — Global investors are paying Switzerland to take their money as they look for safe places to park their capital.
The Swiss government issued short-term debt bills worth 688.8 million francs ($716 million) Tuesday at a negative interest rate of 0.62 percent. That means investors are paying to lend money to Switzerland for three months.
Switzerland first offered negative interest on government debt last year when the franc surged on market fears about the euro.
Unicredit economist Alexander Koch says it underscores how investors are willing to incur some losses to preserve capital.
Tuesday’s debt sale comes after the Swiss National Bank said Switzerland was preparing for a possible collapse of the euro. SNB president Thomas Jordan told Zurich Newspaper SonntagsZeitung on Sunday that Switzerland was considering introducing cross-border capital controls.
and on a side note for all those wondering just how long the Swiss will continue to soak up the FX losses (we assume now balanced against the real gains from hugely negative rates of interest on their debt issuance), the following chart shows the bias to a considerably stronger Swiss franc that is priced into EURCHF FX options as bets are placed for the SNB's ability to hold th peg in the face of further implosions in Europe...
Charts: Bloomberg
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Debt paying itself off, awesome, sounds like the best plan I have heard so far. Nevermind that the vast majority of the world's debt is fraudulent, debt-free money anyone? < crickets >
Bizarro World, FTMFW!
This will do wonders for my retirement fund.
Can we logically ever have hyper deflation? Anyone?
I think we will see binary inflation - inflation in some sectors (food, energy, essentials), deflation in consumer products (non-essentials) and deflation in housing add infininum. The dollar won't crash like some people suggest - there's just too much anticipation. Don't get me wrong - I think there will be massive inflation, albiet brief, in some areas, but it won't be sustainable...
Isn't what you describe what we have right now?
Never go full retard?
Too late.
In Soviet Russia, debt repays you back!
Funny how that Russian Rush went. I think we really don't talk about it enough:
http://truth-out.org/news/item/9409-the-oligarchys-rule-of-law-from-russian-to-oklahoma
FTA: " We still operate under the same neoliberal/libertarian major premises we inherited from the Hayek-Mises-Friedman era, an ideology that considers notions like "the public good" to be quaint delusions at best—as opposed to today's still-dominant, still-standing foundational ideology, which says that freedom equals the ruthless pursuit of individual self-interest, the unlimited acquisition of private property and wealth, framed within a cold, dystopian "rule of law." "
Like it is that hard to understand. Mark Ames is a fucking retard and so are you.
that's mathematically impossible
"At the current rate, Swiss debt, which is quite negative,"
EPIC FAILURE. Swiss debt (whether you consider Public Debt or External Debt) is NOT negative. Swiss external debt is near the highest in the world. It's public debt sits at about 50% of GDP which is low for Europe but hardly "negative." Love the site Tyler. That's why I posted this.
Debt-free debt?
Oh shit, this is just like when you try to figure out how time and space was originally created. You just keep ending up with the worst kind of headache.
Welcome to Bernanke's terrestrial realm!
Yes, we can!
Interesting times, people. This is a clear signal that the S is certainly about to hit the fan in a very public way. No way to hide it anymore. And if June brings anything to the table...
When it happens... FarceBook will be $20 and gold $1900
FB 10 gold 1200
Just for some time, Geldmarktbuchforderungen, st bills are neg. Normal in CH. Do not be astonished, seing Mr. T. Jordan announcing new levels, 1.10 and then parity. SNB can't stand the heat. Probably surpassing India this months by amount of CB reserves. Funny, isn't it?
SNB's game?
WTF?
Can someone explain why they don't just hold CHF cash instead of neg. yield paper?!
Counter-party risk.
If you have millions to manage, would you keep it in a bank these days? Or would you rather chose an entity with its own military (and printing press)?
how is cash on deposit more risky?
Bank holiday.
nope, the central banksters believe that a country with no resources will suffer from a strong currency - give me a brake and historical proof.
the historical proof is Switzerland, today.
The manufacturers, the tourist industry etc. all lobby for this floor and print many, many pricelists in EUR.
Another historical proof is how in the past the US Farmers lobbied for a silver standard (softer) instead of a gold standard (harder). The rallying cry was "don't nail us on a cross of gold".
Of course "suffering" and "lobbying and crying to be suffering" might be two separate facts.
have you ever been to switzerland?
you know... just mountains no resources and a solid economy... perhaps we're aliens... dont know
currency devaluation, bank holiday, bank rehypothication, bank run, etc.
Ocean's 15.
Who? Investors? Better keeping st bills of CH than leaving it in banksters acc. Don't you think so?
open an account with credit suisse they offer you 1.75% interest on your money, no joke.big advertising campaign.
but, but they are not in need of new assets trust me ....
it is counterparty risk avoidance scheme on the one hand, but more importantly- you get negative interest on those papers which you can more then offset by lending them out. There is a big demand for quality collateral in Europe these days and those AAA papers are in wicked demand so owing them is very beneficial
From the simpleminded view, it's hard to understand exactly why paper with different printing on it from the same government can be valued so differently, but this is in fact exactly the point.
EDIT: I guess for the benefit of all the other amateurs and dillettantes out there reading...
AAA ratings on bonds have value solely because of legislation and treaty that goes *beyond* the similar value placed on paper currency. For institutions, there is money "better than" currency.
I want in this on action!
As I just stated above. Get yourself a printing press and a well-trained military force, and you're in like Flynn!
Actually what you need is country with no other significant economic activity, so you can float your currency at will. A small island, a couple of surplus Ohio class boats w/ D2s, and your set.
That, and a population armed with high end sniper rifles and automatic weapons.
The Greek, Italien, Spanis, Portuguese, and Irish tax collectors can get a hold of it if you store in country.
Try words putting order in right.
OK, I'm an admitted newbie. But am I missing something? Investors are paying Switzerland for the privilege of parking their fiat paper (or virtual fiat?) in their banks? WTF?
On a side note, if anybody here wants to pay me to store their gold/silver/cash/guns for them, I have a nice safe.
Rit u r, inv are paying to keep CHF out of banking system, as collegue notapplicable was mentioning: counterparty risk. Do you want to have UBS or CS for big amounts in ur books?
Couldn't the Swiss just sell more debt at negative interest to devalue their currency, thus killing two birds with one stone?
Theoreticaly they could, but.....they do not need the funds. Don't laugh, it's the truth....for the time being.
This is causing huge structural problems. The pensionfund system is based on that it is possible to buy safe bonds that make several percent more than inflation.These funds have been underpreforming for years. They are already stretched. Throw in a few more years with negative ROI and these funds will need to seriously reduce pension payments.
During this crisis people have only looked at the short term. They have built in major structural flaws in doing so.
Great points.
Solving that is in Chapter 234 of the book "Central Banker's Guide to Solving Stupid Shit Problems Created by Your Central Bank Meddling in the First Fucking Place".
I agree, but think about the Norwegian Wealth Fund... they got their fingers burnt in Greece.
In times (and banks) like these it's more important to get Return OF Investment than Return ON Investment.
"Unicredit economist Alexander Koch says it underscores how investors are willing to incur some losses to preserve capital."
WAT
that's a total!
Damn, I'd issue issue trillions of debt, collect the .62% and buy chocolate all day long.
i just hada 6 oz cup of dutch chocolate ice cream
fitiCent @ discountGrocery but they don't always have them
thankfully
If the fiat you are buying Swiss debt with is devalued at a greater percentage than the negative yield of the bond, over the term of the bond (likely in today's world?), then you still end up better off than by just holding a rapidly devaluing fiat.
Well said. That goes a long way to help peeps understand why negative yields on sovereign debt may be better that hoarding the cash. Also explains beautifully why its a good idea to hold physical AU and AG.
My stacks are getting bigger. The rest is white noise.
I don´t get it, perhaps I´m stupid...
Let´s say I buy 100 CHF worth of bonds. After two years I get the back the principal plus the coupon of -0,63 CHF. How can that protect me from inflation? I got the same crappy, inflated fiat money, just less of it.
Let us use some simple round numbers and a country we know - Zimbabwe. Let us say 10 years ago you took $1000 Zimbabwe dollars - Zs - and converted them to $1000 francs (let us just assume that Zs were once a strong currency). With your $1000 francs you buy a ten year bound that had a negative yield, for ease of calculation, let us say over the duration you lost 10% of your capital, so after 10 years you had only $900 in principle left. Meanwhile, during that same ten years, Zs inflated so much that $1000 Zs are now only worth 1Z (in actuality it was worse than that). If you held the 1000 Zs in a bank account they would now only have the puchasing power of 1Z. Instead you invested in negative yielding Swiss bonds and you have $900 worth of francs. Now when you convert your francs back into Zs, you end up with 900,000 Zs.
Like mentioned previously, precious metals would probably be as good but most likely better in a world of rapidly inflating currencies. Some productive assets would be better as well.
People of the upperclass putting their money en masse into
Swiss banks and gov bonds wasn't that the same thing what
happend right before the two world wars?!
I'll offer up my mattress. The rate will pay for the guards.
Negative rate and collapsing gold.
DISCLAIMER because you start throwing stuff. I am not saying that makes sense, I am not saying I enjoy this, I am just saying that people are willing to sell gold to buy debt with no or negative yields.
I am not saying I enjoy this, I am just saying that people are willing to sell gold to buy debt with no or negative yields.
***********
Show us where you see people selling gold to buy debt-
"People" have and have had no gold to sell or the extra money to buy gold now and yet for the past 10 or so years-the price has risen yoy and has been the best investment class for the past 20 years running-
How do you explain that-or for that matter the question i recently asked you on another thread today?
http://bit.ly/xPhPSI
http://bit.ly/MWhFU9
And here I am trying to decide when will be the best time to max out my credit cards to buy PMs.
The banksters are laughing all the way to the ( well ) bank.
<wrong thread>
Switzerland makes up for it by giving you a cup of Swiss Miss hot chocolate at redemption.
Oh, I thought it was Swiss Kriss. (laxative)
Diet lard.
Wait.. wait..
So one of the most desirable currencies in the world, that now has a negative carry, and self buying bonds due to ridiculous EXTERNAL demand is also one with .... wait for it.. the most conservative and tightly regulated banking systems in the world. I thought regulation was bad?
Vote 1, de-regulation of the banking system....
well if anybody needs armed guards to transport their gold let me know...I take payment in gold and silver
This is an Onion article right?
Ok, I consider myself a tad more financially aware than most but this I truly don't understand so any reponse to the following question is greatly appreciated...
Why would one pay somebody to own their debt when they could just buy the currency outright? Thanks in advance.
1. Counterparty risk. With cash, your counter-party is the bank that holds it. You have no specific claim against future national wealth with cash, just an accounting entry with your bank. With government debt, your counterparty is the national government that issued it and implicitly the citizens whose taxes balance that government's books and make their currency so desirable.
2. Liquidity. Some currencies M0 level are dwarfed by the availability of outstanding debt. I don't know that that's true specifically in the case of Switzerland, but it's true in most of the Western world. The US M0 is something like 2 Trillion dollars, but its outstanding publically traded debt is 5-6 times higher. If you want to park a lot of value somewhere quick, it's often easier to buy debt than to go into the FX markets and buy dollars.
3. Potential Gains. Amazingly, it's likely that those bonds will gain in value in the next year or so. I still marvel at the idea of bidding up US 10-years that are already generating negative real yields (1.75% nominal), but that's what's happening.
Hope that helps....
To me this only makes sense if you are