Author Topic: Negative bond yields  (Read 1613 times)

scottish

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Negative bond yields
« on: March 05, 2015, 06:46:34 PM »
This is interesting.  A number of country' government debt is now trading at a price that produces a negative yield.  I even see some Canadian bonds that mature in 3 months with a negative yield.  This article says that it's because bond index funds are required to track an index and the index has moved into negative yield territory.

http://www.bloomberg.com/news/articles/2015-03-04/david-zervos-here-s-who-s-buying-all-that-debt-at-negative-yields

This article suggests that they are being used as a form of currency speculation.

http://www.cnbc.com/id/102374260#.

I especially like the quote:
Quote
"Is it strange for you to buy negative-yield bonds? Probably not," said Nizam Idris, head of strategy for fixed income at Macquarie.
It's about playing the currency, he said.
But would it not be better to speculate in currency directly or currency derivatives instead of buying negative yield bonds?  Not advocating currency speculation here, just curious why bonds would be the vehicle.

Finally this article is suggesting that bond prices are up on speculation that the ECB will buy them as part of quantitative easing.
http://www.theglobeandmail.com/globe-investor/investor-education/who-would-buy-a-bond-with-a-negative-yield/article23132250/
Is anyone else following this topic?  Will banks soon charge us interest to keep money in our savings account?

Indexer

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Re: Negative bond yields
« Reply #1 on: March 05, 2015, 08:37:04 PM »
There was a short period in the financial crisis where T bills had negative yields on the secondary market.  They weren't issued that way, but there was such a flight to safety that people were paying more for them than they were going to get back. 

So yes, negative yields are possible.  They normally happen during a flight to safety.  Would you rather risk losing all your money, or pay someone 1% to guarantee its safety?  We don't need to worry about that.  But if you had money in Greek banks?   Oh yea... it might be worth paying the Swiss or Germans to keep your money safe. 

There is also the concern about deflation.  Inflation is bad for bonds, but deflation is good for them.  Deflation just so happens to be bad for everything else.  By pushing yields negative they are forcing people to move out of safe assets and either into equities or into spending the money.  These should help prevent deflation. 

dragoncar

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Re: Negative bond yields
« Reply #2 on: March 05, 2015, 09:19:06 PM »
Inconceivable!  Interest rates can only go up from here!  I have shorted all bonds.

wtjbatman

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Re: Negative bond yields
« Reply #3 on: March 05, 2015, 09:43:35 PM »
America doesn't put up with any pussy negative yields. It may fly in Europe but not in my country. Get that shit out of here.