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This Is Your Bond Market. This Is Your Bond Market On Fedroids... And Germany Goes Zero Coupon
The following chart from Dylan Grice does a good job of demonstrating, once and for all, what is going on in the bond market.
And speaking of bond markets, a few hours ago the German debt agency announced that it will for the first time ever, issue zero coupon 2 year bonds, which as the name implies will pay zero cash interest. In other words, Germany, sick and tired of being the only good cash collateral in Europe, is gradually halting the payment of any cash interest on its paper. After all: why should it?
Germany will for the first time sell two-year bonds on Wednesday that won't make scheduled interest rate payments, a ringing endorsement of the safe appeal of German debt and a reflection of increased market nervousness over the composition and direction of the euro zone.
The German federal government Tuesday set a zero coupon on a new issue of two-year federal Treasury notes, or Schatz. Germany will auction €5 billion ($6.41 billion) of the two-year note on Wednesday.
While other countries have sold zero-coupon bonds in the past, these offerings were designed as such to meet demand from a certain group of investors rather than being a reflection of a country's slumping borrowing costs.
In contrast, a zero coupon on the new German note underscores a surge for safety, which has pushed yields on bonds perceived to be safe sharply lower. Investors are so nervous about the potential loss of capital that they are willing to forego interest rate payments just to protect their money by parking their funds in German debt.
Coming soon to a market near you: negative interest bonds, where one pays the government for the privilege of holding repoable collateral. This is not a joke.
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How does one say, "Fuck you Grandma!" in zee German?
Fick Dich, Oma.
Sorry, but that is incorrect.
The correct answer is, "Vee are halting zee payment of any cash interest on zee Rheinpaper."
ZIRP is a helluva drug..
So basically anyone buying these bonds is doing so because of some twisted hedging requirement?
Everytime I see this, the good Doctor Fekete floats up in my minds eye saying, see?
And if theoretically, yields can even be negative, it seriously says something about backwardation in the liquid currency market complex, eh?
ori
smorgasboard
Can a brother get a ZIRP?
"Lend me your money for nothing, or else!"
Actually, I've been using 0% credit cardz for years now.
You know the drill... Load up a card at 0% (no fees), pay only the monthly minimum, then right before the intro APR expires (usually 12-18 months), pay it off in full.
Wash, rinse, repeat.
In the meantime, do whatever u like with your no-cost float...
At least that's an actual gamble for the issuer as they might earn some interest if you screw up.
I wonder at what point will MSFT and the other cash flush corps turn into full blown financials borrowing for next to nothing only because it the best return then can get in a dying economy.
Once this curve flattens, then we'll know we've made it fully into Bizarro World.
http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=MSFT
Worked for GE. Wait ... wut?
I cant wait to open up the discount window for Banco de Gates.
@ Trimmed Hedge
You might check your credit score before you conclude that it is truly 'no-cost'...
As long as mama keeps gettin' her crack, she don't give no damm 'bout no bogus cartel-given score.
Honestly, my credit score is fine. And if it weren't, they prolly wouldn't be givin' me these free loans all these years.
P.S. I forgot to mention in my original post that I close most of the cards after I pay 'em off...
Honestly, my credit score is fine. And if it weren't, they prolly wouldn't be givin' me these free loans all these years.
You just summed up the housing bubble in twenty-two words.
Big diff is, I ain't taking out hundreds of thousands of dollars at a time to buy an overvalued asset that's bound to grind down for years & years.
I ain't stoopit.
But, to each his/her own. If peepz don't want to participate in the 0% credit card game, no skin off my back. It is out there though should one desire.
FYI, my credit score is in the high 700s.
Trimmed Hedge, do you love Obama?
"It's patriotic!" - Josef Von Biden
"Fick dich Oma!"
See, that's what I love about ZH. Two people know how to tell their grandmothers to fuck off in another language.
Damn. Im speechless
Speaking of Grandmas, one literally went over the edge in a high end Detroit suburb yesterday. Sad story of our times ?
Well, there's this...
http://www.shtfplan.com/headline-news/what-are-you-so-afraid-of_01272012
Fuck you, Miss America.
"Coming soon to a market near you: negative interest bonds, where one pays the government for the privilege of holding repoable collateral. This is not a joke."
I'll stick with my Gold and Silver. But thanks for playing anyway.
Some repo desk jockeys don't approve of your plan.
Actually they would not have to raise taxes if they could get a big enough negative bond....say to the minus of 15%.....you could get rid of some debt that way...
GEEZUS!
If people can't see what this is implying then they deserve to lose all!!
zero coupon bonds = imminent failure expected
How much is your money worth if you loan it out for nothing???????
Munny (FRNs,Zeuros, etc) != MONEY
Zero-coupon does not inherently mean no return on your money. They are auctioned, and might sell for a discount to the face value. Or not, depends on the situation. The difference is, you get all your return at the end, instead of a periodic interest payment. Even junk bonds could in theory be zero coupon and sell at huge discount to face (if anyone would buy them).
Surprised it took this long in the thread for someone to point out what "Zero Coupon" actually means...
"You keep using that word, I do not think it means what you think it means."
Not neccessarily. If Germany issues zero interest bonds (not at 0.00% but non-yielding) people can still make money if the bonds increase in value, because the bond still yields zero, not negative rates.
This could work as a de facto Deutsche Mark, while still using Euros. Even if they had bonds with negative yields, it would give people a two-tiered Euro effect.
Germany gets all the cash inflows from the periphery, has zero interest on its own bonds, but people still make money selling no-yield bonds at higher prices to other people. It has negative rates, real or even nominal, on general "Eurobonds" used as a transfer-payment mechanism to support the rest of the Eurozone.
Germany benefits from having a weak currency that is the same as all the other countries, so their exports are not expensive, plus they get to rollover all their debt at zero interest. The other countries benefit with the transfer payments making up their revenue shortfalls, so they don't collapse and can keep buying German-made goods.
Close, but too optimistic ...
... of an overall answer. Germany, at this point, could issue long dated bonds at 0% interest. Why not 10 year bunds at 0%? There would be enough of a market for them.
Germany selling 0% bonds is the exclamation point at the end of the EU/euro experiment.
It says Germany no longer cares what the spread between its bunds of any denomination and the same period bonds of its "partners" in the EU turns out to be.
This is the financial middle finger in response to the "growth" agenda being put forward by the broke countries of the EU and the financial idiot that is the TOTUS.
"Germany benefits from having a weak currency that is the same as all the other countries, so their exports are not expensive, plus they get to rollover all their debt at zero interest. The other countries benefit with the transfer payments making up their revenue shortfalls, so they don't collapse and can keep buying German-made goods."
This is a one way cash flow process towards Germany. It leaves the other EU countries in a worse position trying to sell their debt. It invites further explosion in the other EU's countries interest payments because it is an open statement to the bond markets, "We ALL know these other countries are doomed under the current arrangement."
barliman
Safety is in the eye of the beholder.
Coming soon to a market near you: negative interest bonds, where one pays the government for the privilege of holding repoable collateral.
We effectively have this now. If inflation is greater than the interest paid on bonds, you effectively have a negative real interest bond.
Janet Yellen loves this idea, to spur spending. Benron loves it because it spurs risk asset buying (SP500 & AAPL).
That was my first thought. Doing their damndest to funnel money back into risk assets.
It's one thing to have negative real rates: after all only 0.2% of the population understands how inflation works. Nominal negative rates however will be grasped by everyone instantly.
It doesn't take a genius to understand the incoherence of money for nothing.
That ain't workin...
I dunno, TD -- there's lots of folks with 0% checking accounts paying hefty monthly charges out there.
I think if they just called it a "safety commission" or a "transaction tax," people would just lumber along.
It's like asking your rapist if he'd like to go again.
How will the schepple respond to currency collapse when it arrives? And why is that event so delayed? o
The longer they can shake the trees, the more goodies fall out of the weak hands.
How will the schepple respond to currency collapse when it arrives? And why is that event so delayed?
See 28 Days Later for the answer to both questions.
uber`fuber,... compounded ZIRP interest! Viva Dystopia!!!
Might this be the bell being rung at tthe top of that market or do they have to offer 30 year Zeros.
It is even worse, you are taking a one sided risk. Your German bonds can only go down if interest rates pick up. Lets say that the Germans go along with the Eurobonds, then all zero coupon holders would have lost capital if they need their money back before the two year term.
Why in hell do people do do that? Obviously NOT for the reasons that are public knowledge. Something a lot bigger is at stake that we don't know about. Not even zero hedge.
One sided bets are crazy bets...
Looking forward to conspiracy theories on this one...
Until next time,
Engineer
After all: why should it?
European community? Payback for WW1 and WW2??
"This is not a joke."
And yet, still quite amusing....
Some people are laughing all the way to the bank.
In fact several (TBTF) banks come to mind.
Zero interest for two years or gold for two years. Seems this would be bullish for gold.
Whoops! Fat finger reply.
Zero interest for two years, and the fed confiscates all gold! bullish for the fed!
By constantly attacking gold and silver, Central Banksters have scared investors witless. Only the witless will lend at 0% interest in an environment where fiat currencies are imploding and debts are skyrocketing.
or, alternatively, by constantly attacking gold and silver, central banksters have let folks know what to buy...
BTW, nice ad on this page from Ally Bank...
"High"-yield 12-month CD = 1.04%
LULZ!
I think what they meant to say was: "You've got to be high to think these will yield"
Listen sheep.
I want everyone to invest in the equity market. Now.
This is too easy: short the new German 2 year...what's my downside?
Somehow I believe the lads at Hayman Capital are preparing their short position as you typed - Money for nothing....Inflation run free!
You won't be able to deliver nor borrow.....never short what does not exist
None if you can find zero coupon bonds at face value to borrow or are able to do naked shorts.
I can't do either...
Can you?
Until next time,
Engineer
If I'm understanding this correctly, it is not a zero percent interest rate; rather, there are no interest rates tied to the bond at all. It is not really a bond; it is an undercover Deutsche Mark.
It can appreciate to any value, but when it expires, you will only get paid the face value in Euros, unless there is an option to rollover. If you are shorting and it increases in value, you would still lose money.
...it is an undercover Deutsche Mark.
That was the sound of a penny dropping.
Damn Jerry's playin' it all cagey....
love Dylan Grice.........one of the true great thinkers left along with a Scot named Hugh.
Coming soon to a market near you: negative interest bonds, where one pays the government for the privilege of holding repoable collateral. This is not a joke.
I beg to differ - this is a huge fucking joke - on us!
with negativ interest, the debt pays itself off. how nice
'Zactly..
Good luck refinancing old loans.
When old bonds mature, you just roll them over at negative rates. Then, you just make the rollovers compulsory. See? Problem solved.
Do you have any idea what negative nominal rates would do for gold? The one country that should be charging negative nominal rates is Japan, but the somehow manged to avoid those circumstances. The U.S. should be seeing negative nominal rates now, but had only done so for very brief periods.
As soon as one govenment decides to go with negative nominal rates and the skies don't open and god doesn't smite the sinners and cast them to hellfire, then they will all begin to see the point, relent, have an epiphany, and let the market decide the rate.
In other words, Germany, sick and tired of being the only good cash collateral in Europe,..
Coming soon - ECB DISCOs? (Euro-Discos!)
Merkel really needs to get laid.
Sarkozy is going to have alot of time on his hands....
and knees
I would, just for the "power fuck".
Well, here she comes with her strap-on. Good Luck!
Its actually not a strap-on...
That's just flat wrong, lol
The German position simply underscores the TRUE RISK - ACTORS ACTING IRRATIONALLY - INVESTING WITH NO RETURN IS NOT INVESTING - BECAUSE INVESTING IS NOT POSSIBLE CURRENTLY - the financial system is so skewed that people are buying the GERMAN BRAND - but every reasonable person knows that Germany has its own debt problem & more importantly despite the great German work ethic - IT CANNOT BAILOUT EUROPE - HOW MANY MORE SIGNS ARE REQUIRED TO PROVE UNSUSTAINABILITY of this environment? I would bet everything I had that this event will be listed in history books as one of the milestone events that occurred before the Euro Zone collapsed upon itself OR imposed federation of all European Nation States to serve Brussels - May God saves us from ourselves!
He won't...
We either save ourselves or we just prove to be another stage in the evolution of the Universe... Quickly forgotten by time...
Remember our whole existance in the universe is but a speck of dust in the planet earth compared to the time the Universe has been around.
Until next time,
Engineer
The chart above indicates that the Federal Reserve Bank (FRB) bought most of the T-bonds & T-bills that the US Treasury has issued in recent years. If that is correct, and if the FRB's behavior in this regard continues, then it may not matter whether the FRB implements further QE at all. AFAICT, the FRB is effectively printing about $1 TRILLION a year even in the absence of further QE. Is my conclusion correct? Please let me know.
-- Paul D. Bain
paulbain@PObox.com
Watch what you say. Bernanke is going to have your IP shut down if you spill any more beans.
Well, actually, that "behaviour" is QE, and if they continue to buy then they are by definition continuing QE, whether it is called that or not.
To complement the explanation, the joke here is that at some point in the future, when the economy is growing again the FED will actually sell these securities to the private market.
I say joke since this can not possibly happen unless we go througha period of hyperinflation.
Since the most basic law in economics is that in the sum of all debts is equal to the sum of all assets. Thinking otherwise is assigning a value to the pieces of paper money is printed on.
Until next time,
Engineer
"Fedroids" - LMAO! Good one Tyler !
Is Preparation-H any help with Fedroids? Maybe Preparation-RP would help? (Ron Paul) "What reduced your ass burn from central banking? This little Congressman from Texas."
I thought rates were below zero already on the short end in Switzerland?
http://av.r.ftdata.co.uk/files/2011/08/swiss-negative-rates.jpg
http://ftalphaville.ft.com/blog/2011/08/11/650656/when-a-government-bond...
Let's see..I bought some facebook @ $43
Maybe some of these bonds would give me a JMP style hedge
"So let me c if I understand this Mr. Sociopath CockSucker Banker...
I give loan u my money for 2 years, that I may never get back, and in return you'll pay me nothing in return? Yes, I like that idea...take my debt coupons, but first I must liquidate my real money- Gold and Silver...I'll b right back......
Sheeeeeeeeeeit!!!!!!
Kaiser Sousa,
That is exactly my point above, basically it makes NO SENSE whatsoever. That can only mean the this is being driven by something we don't know or understand right now.
The banks are playing some game that makes it profitable to buy bonds at zero or negative rates, that can only mean that they have discovered the way to create money out of thin air faster than the CBs can. It has become a game of relative velocities of "out of thin air" money creation...
Anybody has an alternative explanation? I am all ears. This is getting crazier by the minute...
Until next time,
Engineer
I buy Germany's zero coupon bonds because I have no fear of inflation. Besides, the German Zentral Bank gave me my own window so I can skip some of the regular market fees while having the privilege of loanding out my Deutschmarks Euros for nothing.
Maybe it's the old saying, "I'm less interested in the return on my investment than the return of my investment." - Will Rogers
Zero-coupon government issued notes? Isn't that another name for CASH?
LOL
More like a coupon for cash in two years. No wait... that's so old-school thinking. Those things are going to be so valuable, why they'll constantly be able to be resold at a premium!
It would have been cheaper if the gov't had been printing cash all along instead of doing any borrowing. At least then it would have saved all those interest payments. Martin Armstrong has been very vocal about this. Why would any gov't borrow money when it could just print it? Inflation occurs just the same whether money is printed and spent or borrowed and spent. For example, a person lending money to the gov't is just as wealthy as when he had cash (perhaps more so because he expects to receive interest), and when the gov't spends that same borrowed money the gov't contractor receiving it is wealthier than before he earned it. So what was, say $10,000 in the hands of a potential investor, is now $20,000 between the bondholder and the gov't contractor, a net increase of $10,000 in wealth, the same as if the gov't had simply printed and spent the $10,000. See more on my blog: pieeconomics.blogspot.com
In theory, having to repay the debts and having interest on it, plus having a debt-ceiling (or debt target) controls the rate at which the government spends and inflates away the value of the money. If they could just print it, it would get out of control much faster.
The only way to know for certain would be to observe two parallel earths, where everything else is identical, and in one Earth, America prints its own money and in the other, it issues debt. All other events must be equal, otherwise you cannot say for certain.
Of course, with Quantitative Easing, you break the system and create $2 plus the interest for every $1 of government spending, and the fed is no longer an independant entity, but is enabling the government to spend as much as it wants.
Pressure on TLT today
"privilege of holding repoable collateral"
zzzzzippp.. unzips pants
hold this repoable collateral.....
I just had a realization: We are in the middle of a HUGE bubble that will make the last MBS crisis pale by comparisson. The only reason banks and investors would be willing to hold zero interest coupons is that they can use these repoable values to inflate something away that is allowing them to make tons of money. I don't understand the details, not yet, but I do understand the high level and there is NO other reason that I can think of at this time.
If my fears are correct, we are a lot worse than I thought and I thought that things were pretty bad already... SOBs, they will crash the system and without vaseline....
Until next time,
Engineer
With gold crashing faster than the euro, this bond looks appealing, doesn't it?
Seriously guys, just in case you missed it, gold has been falling for nearly 10 months now ... and the crash has been accelerating over the past few weeks ... while stocks and bonds have been doing pretty well in the meantime.
"Seriously guys,........
LMFAO
It's actually funny how people refuse to acknowledge facts. If you believe gold is more expensive today than yesterday, you're either intellectually limited or drunk.
Gold is crashing while gold lovers spend time explaining how everything else is crashing and gold is the only currency ... you know like real estate is a great "investment."
Seriously guy, in case you missed it, the Fed has monetized around 60% of increased Treasury/GSE debt since 2008.
Interesting correlation between gold prices and debt ceilings published over at Seeking Alpha
http://seekingalpha.com/article/608031-where-are-gold-prices-headed-flat-down-or-up
Not that the relationship between failed fiscal policies and gold prices is new to this board's avid readers, but the correlation chart between the US debt ceiling and gold is significant. I wonder if the same would hold true for European debt vs gold? (Rhetorical question)
Now the big question: what happens next. I guess that all depends on how much you think the US or Europe (or even China for that matter) will get fiscally real. (Rhetorical statement)
First para of the story: "Gold prices have grown in value from the $400 level to over $1900 in the span of 10 years."
January 1st 2002, the euro becomes legal tender in the EZ. Now the euro is dying and gold ... it may just be a coincidence. We'll see.
Zero Hedge Bonds? Shit, gimme sum of dat!
This shit is annoying to watch. These few fuk sticks are making a killing and the rest of us are losing and or paying to hold our money?! Honestly now, this world is full of pansies....
Coming soon: zero coupon, zero repayment.
That would be a flight to safety, dontcha know?
To be redeemed in New Deutschmarks?
No it should be a Perpetual
FED = monetary Ouroboros
Zero COUPON bonds? Hell, aren't coupons used to entice the desperate to buy?
Pention funds going to jump on these.
German kids just got sold into bankster slavery.
Wait, if Governments can actually MAKE money on just holding cash for certain durations what do they need stocks for?? Won't the "game" be to make everything else (equities) so horrible you are left with no choice? It will be like paying a tax to the Gov without having to pass any legislation.
Ha! Anybody betting on deflation (in nominal terms) is outta their mind! Currency crisis here we come
I guess I'll keep stacking that silver. The gentlemens money,
I thought Greece had been offering zero interest for some time now :-D
Ferroids = Hemorrids only worse. No relief for the pain!
Paper pm's about to go bidless while physical goes askless.
What's the rate of inflation going to be over the next couple of years? These bonds could pay a couple of percent and they would still lose money.
What knucklehead would buy these things and not physical gold?
Only knuckleheads that are planning to use the fact that these things can be negotiated and repoed to create more money. Most likely they are using them to make huge bets and inflate something with our money without us knowing or understanding what they are doing.
When something doesn't make sense, it means that it does but that you don't know why. When bankers are involved it means that we are being fu..ed without knowing it.
Thinking otherwise is megalomania
Until next time,
Engineer
US 2 year note auctioned at 0.3%yield...57% takedown by dealers.....Germans offering 0% 2 year bond tomorrow....Where was THIS example in my economics class?! - So if I am a EU bank I get NO positive spread for the takedown & considering most EU banks have no little excess reserves who buys this?
After zero interest comes negative interest.
After negative interest come haircuts or outright confiscation.
The only safe store of value is in physical assets.
Watch gold and silver markets dry up completely and spot prices mean shit.
Some heavy Viagra is lifting the miners since Thursday and spot price has no bearing on it.
I guess if you can't buy the physical above ground, you can buy the whole company with rights to what is still in the ground.
Remember that rights can be confiscated. Please read the YPF RESOL saga, where Argentina arbitrarily confiscated 51% of the shares of YPF owned by Spain's REPSOL along with all the rights YPF had to under the ground oil.
It is happening right now...
This is another one of those "pinch myself" moments when it is hard to accept the reality of the tyranny of the times we live in. Bonds with negative interest rates. Unbelievable!
Negative bond yields are just another stealth tax designed to hit the boomer retirees...Uncle Ben has to find a way to pry that housing equity and savings into the real world or "growth" doesn't have much of a chance...
Sheisse!!!
The US has sold zero coupon bonds.........look at the 3, 6 and 12 month treasuries......all sold at zero coupon, but they yield .08, .014, and .19 % respectively.
So is this really all that unusual? Won't they simply sell at discount?
The Germans are part of the Euro
They now issue bonds that pay zero
The person who'd buy
This pie in the sky
Can only be classed as a weirdo
Formatting suggestion:
Hold down the SHIFT key
when you press ENTER
and you may find
they look a lot
BETTER.
Another carry - the German Bonds to the ECB at 150bp and its off to the races. The German deficit financed for null und nix, unless of course the bonds reappear at the Buba.