Bond Negative Interest Rate

[frayne]

Educate me please ! Why would anyone buy a bond with a negative interest rate ?
https://www.france24.com/en/2019070...egative-interest-rate?utm_source=morning_brew

 

[RobbieB]

Wouldn't be high on my list of priorities.

 

[imoldernu]

More on the subject from this 2015 article.

https://www.swissbanking.org/en/services/insight/1.15/the-serious-consequences-of-the-negative-interest-rates

 

[pb4uski]

Educate me please ! Why would anyone buy a bond with a negative interest rate ? ...

Generally, if they have no better choice... especially if you don't want to assume any risk and don't have access to deposit accounts like we do in the U.S.

 

[gerntz]

Generally, if they have no better choice... especially if you don't want to assume any risk and don't have access to deposit accounts like we do in the U.S.

Putting the dough in a safety deposit box isn't a better option? They don't have those in those countries? Gold isn't a better choice?

 

[njhowie]

frayne - you would buy a negative yielding bond if you believed that interest rates were going to be lowered even further (go more negative). In that case, the price of the bond will go higher, and you could sell for capital gains.

gerntz - depending on how much money you have, you may need a very large safe deposit box to hold it all. Then, how would you keep track of it all? Every time you want money you're going to have to make a trip to the bank, during banking hours, sign in, get the box and take your cash. It will take time no matter how you plan it. Contents of a safe deposit box are not insured. Lastly, the cash will experience loss of purchasing power due to inflation.

 

[jim584672]

Makes zero sense to me. Take the cash and stuff it in a vault, get a better return.

 

[njhowie]

Makes zero sense to me. Take the cash and stuff it in a vault, get a better return.

You may say that now, but I guarantee you, if/when the time comes, the vast majority of folks will bite the bullet and accept negative yields up to -1% without flinching, because the protection that the banking institution provides for your holdings will outweigh the cost of withdrawing it all and keeping it in a hard currency form.

 

[CardsFan]

You may say that now, but I guarantee you, if/when the time comes, the vast majority of folks will bite the bullet and accept negative yields up to -1% without flinching, because the protection that the banking institution provides for your holdings will outweigh the cost of withdrawing it all and keeping it in a hard currency form.

Call me when the sky is falling. Until then, makes no sense.

 

[gerntz]

You may say that now, but I guarantee you, if/when the time comes, the vast majority of folks will bite the bullet and accept negative yields up to -1% without flinching, because the protection that the banking institution provides for your holdings will outweigh the cost of withdrawing it all and keeping it in a hard currency form.

What's the cost of keeping hard currency? Last I looked, my 200 pennies are still in the jar.

 

[aja8888]

we all know that banks and bonds are totally safe (look what's going on in Europe).

 

[njhowie]

What's the cost of keeping hard currency? Last I looked, my 200 pennies are still in the jar.

If your retirement savings consists of 200 pennies, more power to you.

 

[njhowie]

we all know that banks and bonds are totally safe (look what's going on in Europe).

There has never been any money ever lost in a FDIC insured account.

 

[aja8888]

There has never been any money ever lost in a FDIC insured account.

True, I was referencing the issues with Euro banks.

 

[ESRwannabe]

Educate me please ! Why would anyone buy a bond with a negative interest rate ?
https://www.france24.com/en/2019070...egative-interest-rate?utm_source=morning_brew

They are a masochist?

They failed arithmetic?

They clicked buy on the wrong etf by accident?

 

[GrayHare]

http://www.early-retirement.org/forums/f28/bonds-with-negative-yields-98259.html

 

[bobandsherry]

The purpose of negative interest rate is to discourage people from saving and put that money into the economy, a way to encourage/stimulate growth. Think of it as more a tax.

 

[RobbieB]

I like that!

Spend the dough now and get full value or invest and see the value fall

 

[racy]

The purpose of negative interest rate is to discourage people from saving and put that money into the economy, a way to encourage/stimulate growth. Think of it as more a tax.

This is the reason.

 

[Koolau]

If your retirement savings consists of 200 pennies, more power to you.

He didn't mention that they were bright uncirculated 1909 S VDB pennies.

 

[adrift]

Makes zero sense to me. Take the cash and stuff it in a vault, get a better return.

Cash is less valuable in France. It's illegal to make a transaction over 1,000 Euros in France.

 

[pb4uski]

.... It's illegal to make a transaction over 1,000 Euros in France.

Not totally right.

As part of the controls introduced in recent years to tackle money laundering and tax evasion, like many other countries in Europe France has restrictions on the use of cash payments for the settlement of debts.

Until now that limit has been set at €3,000, requiring that any debt over this sum be settled by cheque, card payment or bank transfer.

With effect from 1st September this limit has been lowered to €1,000.

It is a rule that applies both for debts between consumers and businesses and for business to business transactions.

However, it does not apply for transactions between private individuals, which remain unhampered by limits.

https://www.french-property.com/news/money_france/cash_payments_limits

 

[Running_Man]

There is not a market in bonds, there is an issuance in bonds and a coordination to lower interest rates over time that makes the holders of bonds much richer than the yields imply. When the US 30 year goes from it's present 2.55% to zero or below the bond holder will make 70 percent in a deflationary environment on top of the coupon, a ten year holder could make 17 percent in two years plus coupons. A 30 year that goes from zero to -0.75% will generate 25 percent income through bond appreciation. Make that the 100 year Austrian bond going from zero to -0.75 and you more than double your bond value.

With 14 trillion in negative interest rates there are some very wealthy nations and individuals that are caught up in this mania and the mania is expanding not contracting. There is nothing in this policy whatsoever that is concerned about the little guy and what he does with his money, it is a plan to continue to hold up the wealth of large bond holders and to keep countries from having to default under interest rates. The revolt against the US rate hikes shows the power the global bond market now holds. It is the Japanese model that will rule the day, eventually when Central Banks own 70-80% of all bonds they will merely cancel the debt

 

[Totoro]

Educate me please ! Why would anyone buy a bond with a negative interest rate ?

You are a pension fund with lots of billions. Your mandate says you have to invest at least x% in long term fixed income assets, and you have to invest in your own currency. Risk averse, government mandated.

These are the main parties buying this stuff, because they have no choice and you can't convert billions into cash, nor are you allowed to by your mandate even if you could.

 

[yakers]

It is the Japanese model that will rule the day, eventually when Central Banks own 70-80% of all bonds they will merely cancel the debt

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sounds possible. So what is the way to proceed if we are headed in the Japanese way? RE, foreign stocks, long term bonds? Somebody must be making money in Japan, how do they do it?