@jmski52 said: Anyone who owns a bond mutual fund, which is just about everyone who participates in a 401k or IRA or brokerage account has benefited. Thats 10s of millions of the general public working class.
Owning a bond fund is financial suicide. The system is unsustainable. Pension funds are in deep trouble because they cannot fulfill their projected returns. Don't kid yourself - those 10s of millions are included in that subgroup. You are blowing smoke.
And owning silver for the better part of a decade and losing 70% isnt? Im not sure you understand the fixed income markets.
And, ask the European bankers and their shareholders and employees how they have benefited from this "tribute".
You made my point. Who exemplifies an elitist, pampered, corrupt group more so than European bankers, their shareholders and employees? Yes, "tribute" is the exactly correct term
And you've missed mine completely. Yeah, this group has benefited greatly from this tribute. LOL
owning silver for the better part of a decade and losing 70% isnt?
Hmmm, I don't see that I've incurred such a loss. In fact, I'm delighted with my position as it is.
Im not sure you understand the fixed income markets.
I think that you should load up on bonds. I'll pass, thanks.
Yeah, this group has benefited greatly from this tribute. LOL
Couldn't happen to a more deserving bunch.
bonds have done GREAT recently. check the value gains as yields have sunk.
Yields sink because more Treasuries continue to be sold into the market than those that mature. That is "money creation" at it's core. $1 Trillion deficit projected for 2020.
The money creation spiral has to continue increasing or government interest costs will explode. The opposing pressures of government debt vs. pension yields required to fulfill payout promises are not reconcilable.
Guess who's going to get screwed. Hint - it won't be gov.com
Q: Are You Printing Money? Bernanke: Not Literally
Yields sink because more Treasuries continue to be sold into the market than those that mature. That is "money creation" at it's core. $1 Trillion deficit projected for 2020
Like I said, you really dont understand the fixed income market.
So I'll take it then you are happy that bank teller lost her job?
And I see you don't recognize that 19 is less than 39. Oh well.
you really dont understand the fixed income market
I understand that the NY Fed makes automatic money when the Treasury sells new bonds to deficit finance overspending by Congress. Nice gig if you can get it. I understand that the bond market is the largest market in the world. What is it that I don't understand?
So I'll take it then you are happy that bank teller lost her job?
So then, you believe in subsidies for bankers?
And I see you don't recognize that 19 is less than 39. Oh well.
Let's see, the last time I sold any significant silver - it was $35/oz. The last time I bought significant silver (not long ago), it was $14/oz. I know that you aren't stupid. What makes you say these dumb things?
Q: Are You Printing Money? Bernanke: Not Literally
@jmski52 said: you really dont understand the fixed income market
I understand that the NY Fed makes automatic money when the Treasury sells new bonds to deficit finance overspending by Congress. Nice gig if you can get it. I understand that the bond market is the largest market in the world. What is it that I don't understand?
So I'll take it then you are happy that bank teller lost her job?
So then, you believe in subsidies for bankers?
And I see you don't recognize that 19 is less than 39. Oh well.
Let's see, the last time I sold any significant silver - it was $35/oz. The last time I bought significant silver (not long ago), it was $14/oz. I know that you aren't stupid. What makes you say these dumb things?
Yup....even though silver is half its value from a few years ago you didnt lose anything. Haha.
as discussed in some other thread, the market is a discounting mechanism. it foresees and adjusts as necessary.
the treasury issues debt and notifies the market in advance how much and how long they are (2 months to 30 years)
should the market see this and think "oh no more crap we don't need" bonds would sell and yields would go up.
also, the treasury auctions these things. should the market not need the stuff the auction would have higher yields to attract more buyers.
so, as more true junk hits the market than is needed, yields would go up, not down.
oh.... as it stands now, auctions are over subscribed. more wants it than there is supply. This is why auctions do not cause yields to continually go up.
The thing supporting bonds right now is the relatively worse government finance picture around the world. Yeah, it's all relative. And unsustainable. Buy bonds if you think otherwise.
yields wont "sink" because more debt is issued, as jmski ascribes
What a web you weave!
uh, the mechanism for keeping rates low is to create more bonds and to sell them into the market. The market responds on it's own, but Treasury bond sales are the primary influencer of rates. That's what we've been told for the past 40 years by all of the financial media, but maybe we've been misled. OTOH, I suppose that we could've been lied to for 40 years, based on what now passes for news media.
Let me know what you think the "facts" are, if you truly think that a $1 trillion off-budget supply of new Treasuries doesn't influence rates downward. Observe the trend in Europe. Deficit finance, oversupply, lower rates. The reason our rates aren't lower is because some demand has moved to our side of the Atlantic because of no better options.
It's a race to the bottom with currencies, which are nothing more than short term debt instruments. It's all unsustainable. More money managers and billionaires are making the same observations every day.
I have no need for churning the silver in my core holdings as cohodk suggests I should have been doing. I have no need to play his nickel and dime commissions game. He's the guru of timing - so he says. Mr. Rainmaker, lol.
The time to sell is when prices are up, and the time to buy is when prices are down - correct? cohodk suggests that I should have sold at $39 instead of $35. lol. He suggests that I shouldn't have been buying all this time, but instead - should have been doing something else. Like I say - how dumb! lol.
Q: Are You Printing Money? Bernanke: Not Literally
@jmski52 said:
, but Treasury bond sales are the primary influencer of rates.
it's the economy right now. with 50 T in debt? maybe not.
Let me know what you think the "facts" are, if you truly think that a $1 trillion off-budget supply of new Treasuries doesn't influence rates downward.
Let me know what you think the "facts" are, if you truly think that a $1 trillion off-budget supply of new Treasuries doesn't influence rates downward. Observe the trend in Europe. Deficit finance, oversupply, lower rates. The reason our rates aren't lower is because some demand has moved to our side of the Atlantic because of no better options
Every sentence you wrote would lead to higher rates, not lower rates. You are obviously confusung rstes with price, or, you dont know how this works.
It seems that many of us can't wrap our brains around negative yield bonds in this thread...for whatever reason. I think part of it has to do with how bonds are traded OTC after the primary offering, as it is vastly different than equities. Lets keep it friendly as I think this is an interesting topic and we can all learn something.
What I am more interested in is the long(er) term impact negative bond yields have on a local/world economy and PM's. My common sense would lead me to believe that negative rates would add to a bleak economic growth picture after a long bull market. That could be a contributing factor to deflation.
If my common sense is leading me down the right path, some parts of the world are entering a deflationary environment and maybe some places like Europe may have already arrived there. With all the QE, anemic growth, high unemployment and negative rates in Europe, is it not outside of the realm to think that they could already be there?
Why have the US Fed, EU and Japan all struggled to maintain their stated inflation goals. As far as I know, bonds are the correct instrument to have, not gold, in a deflationary environment. There is obviously "counter-party" risk and other factors in play with bonds but historically, that has been the strategy used during deflationary periods.
@jmski52 said: The reason our rates aren't lower is because some demand has moved to our side of the Atlantic because of no better options
@cohodk said: Every sentence you wrote would lead to higher rates, not lower rates. You are obviously confusung rstes with price, or, you dont know how this works.
actually the above quote would lead to lower rates, not higher.
Take a $10,000 bond sold with a 2% yield at first.
have someone buy it at $10,100. the net yield will be lower because while they are still getting 2%, at the end they will get only $10,000 which is a smaller fraction than what was paid. The net would be less than the original 2%. This is called yield to maturity.
As money is coming in to buy our bonds, they have been raising prices and lowering yields, and what you hear talked about is yield to maturity by default, pun intended.
Rates are lower becauae there is greater demand. Rates are not lower because there is greater issuance or supply, as jmksi suggests.
He says rates are not lower because demand from Europe is coming here. That makes no sense, as the very reason why rates have declened here is because of that demand from Europe.
He insists that debt issuance (increased supply) results in higher prices. Thats not true. It is the increaed demand tha results in higher prices, and this lower yield.
What I understand is that when rates are lowered, the yields on existing bonds go up as a pricing premium comes into play.
In order to lower rates on a given maturity, the Fed has to issue more bonds - when those new bonds are issued, the market either discounts those bonds or tacks on a premium, according to supply & demand - of course - but the Fed has always used increased supply to nudge rates down.
The demand coming from Europe right now is because their finances are so screwed up that their bond yields are negative. This is the reason that our bonds are attractive on a relative basis, even though our rates are low (and apparently, heading lower because of the capital inflows from around the world). So, bond prices have risen while rates have gone lower, but adding more debt (more bond issuance) to the mix is the traditional method that the Fed uses to lower rates.
The fact that the Fed is issuing more debt to deficit finance government spending is only adding to the downward pressure on rates in the US. And higher bond prices. Go ahead and buy bonds if you think this will continue. All I can say is that somebody's gonna be unhappy when they don't get paid. The whole thing is smoke & mirrors. Thanks Rubin, Greenspan, Graham, Leach, Bliley, and the rest of you other so and so's.
Q: Are You Printing Money? Bernanke: Not Literally
only at the request of member banks who order it in response to anticipated increased cash demand.
"are you printing money? not literally." QE keystroked money into existence and was electronically added to the banks' excess reserve balances. This was supposed to free up money inside the bank for lending, but we all know now that it went to asset purchases.
** https://en.wikipedia.org/wiki/Credit_theory_of_money
Credit theories of money, also called debt theories of money, are monetary economic theories concerning the relationship between credit and money. Proponents of these theories, such as Alfred Mitchell-Innes, sometimes emphasize that money and credit/debt are the same thing, seen from different points of view.[1]
[1] As Innes mentions in What is money? (1913), whenever he uses the word credit or debt, "the thing spoken of is precisely the same in both cases, the one or the other word being used according as the situation is being looked at from the point of view of the creditor or of the debtor."
@jmski52 said:
What I understand is that when rates are lowered, the yields on existing bonds go up as a pricing premium comes into play.
it happens due to "buy the rumor, sell the news" effect. On the other hand, if the Fed is particularly dovish -- moreso than the market expects -- generally but not always you can see yields fall.
In order to lower rates on a given maturity, the Fed has to issue more bonds - when those new bonds are issued, the market either discounts those bonds or tacks on a premium, according to supply & demand - of course - but the Fed has always used increased supply to nudge rates down.
as mentioned:
Treasuries are issued by the Treasury.
Also, the Fed manipulates rates by buying and selling Treasuries in "OMO - Open Market Operations" for the "SOMA - System Open Market Account"
as mentioned:
increased excess supply would potentially send rates higher, except that right now there is more deman than Treasuries are sold in their auctions. So, right now the market is not adjusting prices due to supply "excesses." The results of Treasury auctions are available on their web site and are discussed on CNBC. Graphs of Treasury yields are available in lots of places. compare the auction yield on that day to the data point on the yield chart. The most popular chart would be the ten year.
The demand coming from Europe right now is because their finances are so screwed up that their bond yields are negative. This is the reason that our bonds are attractive on a relative basis, even though our rates are low (and apparently, heading lower because of the capital inflows from around the world). So, bond prices have risen while rates have gone lower, but adding more debt (more bond issuance) to the mix is the traditional method that the Fed uses to lower rates.
you are ok up to the point of the Fed issuing debt. The Treasury issues Treasuries to fund their massive budget deficits, stupid overpayment because companies are ripping them off, etc.
The fact that the Fed is issuing more debt to deficit finance government spending is only adding to the downward pressure on rates in the US. And higher bond prices. Go ahead and buy bonds if you think this will continue. All I can say is that somebody's gonna be unhappy when they don't get paid. The whole thing is smoke & mirrors. Thanks Rubin, Greenspan, Graham, Leach, Bliley, and the rest of you other so and so's.
Treasury - Treasuries.
as mentioned in other posts and above, as prices (demand) go up, rates go down.
Also, I think you can see that more unwanted supply would mean lower debt prices just like in the stock market. Also, more unwanted supply would mean that the rates on those bonds would have to be higher to attract buyers. As people sell treasuries the prices fall and the yields go up. There is an inverse relationship to price direction and yield direction. This was explained in an earlier post.
This is basic bond knowledge. Take a read on the basics of fixed income investing.
Good synopsis MsMorrisine. After 15 years of writing the same retorts on this forum my propensity for verbosity has waned. Thanks for the constructive discourse.
Why would I pay $10 to park my car for a couple hours downtown?
I could park at a meter for $2, or for free a few blocks away..
But! I'd be risking getting a ticket ($50+) getting hit and run ($1000+) or having it stolen ($#*@#!!)
I pay the guaranteed loss to save the risk of losing far more.
A small negative interest paid to a huge relatively safe entity is a way for a smaller but also large entity to park lots of money for a minor fee, to avoid potentially much more in losses if parked somewhere else.
@cohodk said:
After 15 years of writing the same retorts on this forum my propensity for verbosity has waned.
15 days (let alone 15 years) of writing retorts anywhere would lower my propensity to visit. I'd be seeking a forum consisting of more like-minded individuals. But, I guess, whatever gives one a thrill up the leg...
LoL indeed. To me it sounds like rent (of the space) and paying for a service (lot attendant and security camera). But what does it matter the category or label? Why do we need sophistry about the concept? It makes sense to do for the doer.
That's enough rationality for most, but of course it's fun to banter and tease simetimes, isn't it?
People buy gold or negative rate bonds or insurance because it makes sense To ThemSelves to do so. Right?
@cohodk said:
After 15 years of writing the same retorts on this forum my propensity for verbosity has waned.
15 days (let alone 15 years) of writing retorts anywhere would lower my propensity to visit. I'd be seeking a forum consisting of more like-minded individuals. But, I guess, whatever gives one a thrill up the leg...
you are ok up to the point of the Fed issuing debt. The Treasury issues Treasuries to fund their massive budget deficits, stupid overpayment because companies are ripping them off, etc.
Correct about treasury issuance. My mis-statement.
Yes. After awhile, the byzantine nature of the whole scheme begins to obfuscate what goes on. That's by design. Talk of money creation begins to intersect with bond issuance, keystroked currency to purchase said bonds, bond prices, discounting, market forces, capital flows, negative rates, inverted yield curves.
Yes, it's easy to get twisted around, and it's also easy to have your statements twisted around in a different context.
I pay the guaranteed loss to save the risk of losing far more.
A small negative interest paid to a huge relatively safe entity is a way for a smaller but also large entity to park lots of money for a minor fee, to avoid potentially much more in losses if parked somewhere else.
So be it. You've just accepted another tax, and the time value of your money is being stolen from you. If you're okay with that, I suppose it's all good. It doesn't jive with classical finance. Don't ever start thinking that it's normal.
Blackrock's CEO is now saying that instead of default, the plan is to inflate. Figure that into your plans. Figure that into your expectations for bond prices and the impact on the stock market. Gold may not be the answer either, but it's at least something real.
To me it sounds like rent (of the space) and paying for a service (lot attendant and security camera). But what does it matter the category or label? Why do we need sophistry about the concept? It makes sense to do for the doer.
So...….Baley……..what was it when the bank paid you 4% interest on your savings account? Was that somehow irrational? You do realize that the regs have been altered such that the money you keep on deposit no longer belongs to you - it's an unsecured loan to the bank now - you do realize that, don't you?
To me, that is corruption. Not rent.
Q: Are You Printing Money? Bernanke: Not Literally
"The speculators are now moving into the global bond market, chasing price. And of course, as the prices rise, the yields collapse. That’s how we’re getting nominal negative yields. No one has really issued that much debt with a negative coupon. They’ve issued debt with low coupons that then trade up way above par, driving the current yield into negative territory."
"It’s the mother of all bond market bubbles. And it’s not just that speculators have driven the price of almost all sovereign debt way above par. It’s going to come back to par, either when the market corrects or when the bonds are redeemed—and somebody’s got a capital loss of large magnitude sitting right on their balance sheet at the moment."__
Keep an open mind, or get financially repressed -Zoltan Pozsar
To me it sounds like rent (of the space) and paying for a service (lot attendant and security camera). But what does it matter the category or label? Why do we need sophistry about the concept? It makes sense to do for the doer.
So...….Baley……..what was the ...money you keep on deposit no longer belongs to you - it's an unsecured loan to the bank now - you do realize that, don't you?
To me, that is corruption. Not rent.
>
Once i realized that everything is a jamberwahookin, i learned to cordially banter with those who insist that it is a bazoolamplenix.
One comment about the Stockman interview: many of the world's largest holders of bonds, in particular, insurance companies and pension funds, would be thrilled if a/the primary driver of negative rates was trading/speculation/playing chicken, etc. Their biggest fear is that it is something more fundamental. They would almost certainly prefer to deal with the aftermath of a bursting bubble than the thought that very low rates are the new normal.
Also, I'm not sure that things are as leveraged as Stockman suggests.
Finally, Stockman has a long history of predicting doom and gloom. How good is his track record?
Finally, Stockman has a long history of predicting doom and gloom. How good is his track record?
Boils down to whether you believe the economy is doing as great as "they" say it is. I do not. I suspect a lot of questions, including yours, will soon be answered.
What's the difference between issuing economic warnings and predicting gloom and doom? If I tell my kid that his runaway debt is gonna bankrupt him, am I predicting gloom and doom?
Keep an open mind, or get financially repressed -Zoltan Pozsar
If I tell my kid that his runaway debt is gonna bankrupt him, am I predicting gloom and doom?
The difference is that your kid may not subscribe to Modern Monetary Theory and have his hands on the controls of the imaginary money generating machine and the propaganda machine that's attached to its output chute.
Q: Are You Printing Money? Bernanke: Not Literally
It’s going to come back to par, either when the market corrects or when the bonds are redeemed—and somebody’s got a capital loss of large magnitude sitting right on their balance sheet at the moment
Haha....he doesnt know much about math either.
What is difference in current price and par? Then add back interest payments.
While some are issued with negative yields, I do agree the nearly all of it is traded down through zero.
It is bothersome to know the yield curves in several countries are all underwater.
I do wonder if this is piling on. These are capital gains in bonds people are holding. There is some amount of fear of a global recession though. I guess we will see what's what.
Stockman discusses trade imbalances and the end results of MMT - both of which have caused negative rates, yield curve inversion, and the looming bond market destruction.
Excellent point about how the perception of the bond market being safe vs. the risky stock market - have flipped. He's on target about the ramifications for stocks when the bond market corrects.
Not a Stockman article. Lol.
No, it's a Casey piece. An interview with Stockman. From your reaction, I assume that you don't adhere to any of it. So, your point?
Q: Are You Printing Money? Bernanke: Not Literally
Why would anyone invest in anything that offers a negative return? Probably because they think the negative return will have more value than the currency at the time of yield payout. Talk about confidence in your currency, LOL. Another good sign for PMs.
Keep an open mind, or get financially repressed -Zoltan Pozsar
@derryb said:
Why would anyone invest in anything that offers a negative return? Probably because they think the negative return will have more value than the currency at the time of yield payout. Talk about confidence in your currency, LOL. Another good sign for PMs.
Well, silver has had a negative return over the last decade.
@jmski52 said:
Stockman discusses trade imbalances and the end results of MMT - both of which have caused negative rates, yield curve inversion, and the looming bond market destruction.
Excellent point about how the perception of the bond market being safe vs. the risky stock market - have flipped. He's on target about the ramifications for stocks when the bond market corrects.
Not a Stockman article. Lol.
No, it's a Casey piece. An interview with Stockman. From your reaction, I assume that you don't adhere to any of it. So, your point?
I believe his point is that he's smarter than the former White House budget director. Heck, he's smarter than everyone he doesn't agree with.
Keep an open mind, or get financially repressed -Zoltan Pozsar
Comments
bonds have done GREAT recently. check the value gains as yields have sunk.
And owning silver for the better part of a decade and losing 70% isnt? Im not sure you understand the fixed income markets.
And, ask the European bankers and their shareholders and employees how they have benefited from this "tribute".
You made my point. Who exemplifies an elitist, pampered, corrupt group more so than European bankers, their shareholders and employees? Yes, "tribute" is the exactly correct term
And you've missed mine completely. Yeah, this group has benefited greatly from this tribute. LOL
https://de.reuters.com/article/uk-banks-job-cuts-idUKKBN1441P9
https://www.bloomberg.com/news/articles/2019-08-15/banks-announced-almost-50-000-job-cuts-this-year-led-by-europe
https://www.bloomberg.com/news/articles/2018-10-19/a-race-to-the-bottom-for-european-banks-taking-stock-jnfn3s1v
Knowledge is the enemy of fear
owning silver for the better part of a decade and losing 70% isnt?
Hmmm, I don't see that I've incurred such a loss. In fact, I'm delighted with my position as it is.
Im not sure you understand the fixed income markets.
I think that you should load up on bonds. I'll pass, thanks.
Yeah, this group has benefited greatly from this tribute. LOL
Couldn't happen to a more deserving bunch.
bonds have done GREAT recently. check the value gains as yields have sunk.
Yields sink because more Treasuries continue to be sold into the market than those that mature. That is "money creation" at it's core. $1 Trillion deficit projected for 2020.
The money creation spiral has to continue increasing or government interest costs will explode. The opposing pressures of government debt vs. pension yields required to fulfill payout promises are not reconcilable.
Guess who's going to get screwed. Hint - it won't be gov.com
I knew it would happen.
Yields sink because more Treasuries continue to be sold into the market than those that mature. That is "money creation" at it's core. $1 Trillion deficit projected for 2020
Like I said, you really dont understand the fixed income market.
So I'll take it then you are happy that bank teller lost her job?
And I see you don't recognize that 19 is less than 39. Oh well.
Knowledge is the enemy of fear
Why don't you explain how the fixed income market works otherwise it's no an argument but mere contradiction.
My 3% CD's are trading higher than par. Strange times.
100% Positive BST transactions
you really dont understand the fixed income market
I understand that the NY Fed makes automatic money when the Treasury sells new bonds to deficit finance overspending by Congress. Nice gig if you can get it. I understand that the bond market is the largest market in the world. What is it that I don't understand?
So I'll take it then you are happy that bank teller lost her job?
So then, you believe in subsidies for bankers?
And I see you don't recognize that 19 is less than 39. Oh well.
Let's see, the last time I sold any significant silver - it was $35/oz. The last time I bought significant silver (not long ago), it was $14/oz. I know that you aren't stupid. What makes you say these dumb things?
I knew it would happen.
Yup....even though silver is half its value from a few years ago you didnt lose anything. Haha.
Knowledge is the enemy of fear
Well, yields wont "sink" because more debt is issued, as jmski ascribes.
Why do i have to disprove? Why cant some just write fact?
Knowledge is the enemy of fear
as discussed in some other thread, the market is a discounting mechanism. it foresees and adjusts as necessary.
the treasury issues debt and notifies the market in advance how much and how long they are (2 months to 30 years)
should the market see this and think "oh no more crap we don't need" bonds would sell and yields would go up.
also, the treasury auctions these things. should the market not need the stuff the auction would have higher yields to attract more buyers.
so, as more true junk hits the market than is needed, yields would go up, not down.
oh.... as it stands now, auctions are over subscribed. more wants it than there is supply. This is why auctions do not cause yields to continually go up.
The thing supporting bonds right now is the relatively worse government finance picture around the world. Yeah, it's all relative. And unsustainable. Buy bonds if you think otherwise.
yields wont "sink" because more debt is issued, as jmski ascribes
What a web you weave!
uh, the mechanism for keeping rates low is to create more bonds and to sell them into the market. The market responds on it's own, but Treasury bond sales are the primary influencer of rates. That's what we've been told for the past 40 years by all of the financial media, but maybe we've been misled. OTOH, I suppose that we could've been lied to for 40 years, based on what now passes for news media.
Let me know what you think the "facts" are, if you truly think that a $1 trillion off-budget supply of new Treasuries doesn't influence rates downward. Observe the trend in Europe. Deficit finance, oversupply, lower rates. The reason our rates aren't lower is because some demand has moved to our side of the Atlantic because of no better options.
It's a race to the bottom with currencies, which are nothing more than short term debt instruments. It's all unsustainable. More money managers and billionaires are making the same observations every day.
I have no need for churning the silver in my core holdings as cohodk suggests I should have been doing. I have no need to play his nickel and dime commissions game. He's the guru of timing - so he says. Mr. Rainmaker, lol.
The time to sell is when prices are up, and the time to buy is when prices are down - correct? cohodk suggests that I should have sold at $39 instead of $35. lol. He suggests that I shouldn't have been buying all this time, but instead - should have been doing something else. Like I say - how dumb! lol.
I knew it would happen.
it's the economy right now. with 50 T in debt? maybe not.
done.
Let me know what you think the "facts" are, if you truly think that a $1 trillion off-budget supply of new Treasuries doesn't influence rates downward. Observe the trend in Europe. Deficit finance, oversupply, lower rates. The reason our rates aren't lower is because some demand has moved to our side of the Atlantic because of no better options
Every sentence you wrote would lead to higher rates, not lower rates. You are obviously confusung rstes with price, or, you dont know how this works.
Knowledge is the enemy of fear
It seems that many of us can't wrap our brains around negative yield bonds in this thread...for whatever reason. I think part of it has to do with how bonds are traded OTC after the primary offering, as it is vastly different than equities. Lets keep it friendly as I think this is an interesting topic and we can all learn something.
What I am more interested in is the long(er) term impact negative bond yields have on a local/world economy and PM's. My common sense would lead me to believe that negative rates would add to a bleak economic growth picture after a long bull market. That could be a contributing factor to deflation.
If my common sense is leading me down the right path, some parts of the world are entering a deflationary environment and maybe some places like Europe may have already arrived there. With all the QE, anemic growth, high unemployment and negative rates in Europe, is it not outside of the realm to think that they could already be there?
Why have the US Fed, EU and Japan all struggled to maintain their stated inflation goals. As far as I know, bonds are the correct instrument to have, not gold, in a deflationary environment. There is obviously "counter-party" risk and other factors in play with bonds but historically, that has been the strategy used during deflationary periods.
actually the above quote would lead to lower rates, not higher.
Take a $10,000 bond sold with a 2% yield at first.
have someone buy it at $10,100. the net yield will be lower because while they are still getting 2%, at the end they will get only $10,000 which is a smaller fraction than what was paid. The net would be less than the original 2%. This is called yield to maturity.
As money is coming in to buy our bonds, they have been raising prices and lowering yields, and what you hear talked about is yield to maturity by default, pun intended.
Rates are lower becauae there is greater demand. Rates are not lower because there is greater issuance or supply, as jmksi suggests.
He says rates are not lower because demand from Europe is coming here. That makes no sense, as the very reason why rates have declened here is because of that demand from Europe.
He insists that debt issuance (increased supply) results in higher prices. Thats not true. It is the increaed demand tha results in higher prices, and this lower yield.
Knowledge is the enemy of fear
What I understand is that when rates are lowered, the yields on existing bonds go up as a pricing premium comes into play.
In order to lower rates on a given maturity, the Fed has to issue more bonds - when those new bonds are issued, the market either discounts those bonds or tacks on a premium, according to supply & demand - of course - but the Fed has always used increased supply to nudge rates down.
The demand coming from Europe right now is because their finances are so screwed up that their bond yields are negative. This is the reason that our bonds are attractive on a relative basis, even though our rates are low (and apparently, heading lower because of the capital inflows from around the world). So, bond prices have risen while rates have gone lower, but adding more debt (more bond issuance) to the mix is the traditional method that the Fed uses to lower rates.
The fact that the Fed is issuing more debt to deficit finance government spending is only adding to the downward pressure on rates in the US. And higher bond prices. Go ahead and buy bonds if you think this will continue. All I can say is that somebody's gonna be unhappy when they don't get paid. The whole thing is smoke & mirrors. Thanks Rubin, Greenspan, Graham, Leach, Bliley, and the rest of you other so and so's.
I knew it would happen.
Increased supply = increased price. OK you win. I give up. Lol
PS...the Fed doesn't issue debt.
Knowledge is the enemy of fear
The FED prints debt.
Keep an open mind, or get financially repressed -Zoltan Pozsar
And fishing rods catch fish.
Knowledge is the enemy of fear
yes, a necessary tool. an accomplice.
Keep an open mind, or get financially repressed -Zoltan Pozsar
Kinda like a ZH subscriber.
Knowledge is the enemy of fear
ZH is free for those who welcome truth. Probably cost you.
Keep an open mind, or get financially repressed -Zoltan Pozsar
See definition #2
Knowledge is the enemy of fear
yep. definitely gonna cost you.
Keep an open mind, or get financially repressed -Zoltan Pozsar
only at the request of member banks who order it in response to anticipated increased cash demand.
"are you printing money? not literally." QE keystroked money into existence and was electronically added to the banks' excess reserve balances. This was supposed to free up money inside the bank for lending, but we all know now that it went to asset purchases.
** https://en.wikipedia.org/wiki/Credit_theory_of_money
Credit theories of money, also called debt theories of money, are monetary economic theories concerning the relationship between credit and money. Proponents of these theories, such as Alfred Mitchell-Innes, sometimes emphasize that money and credit/debt are the same thing, seen from different points of view.[1]
[1] As Innes mentions in What is money? (1913), whenever he uses the word credit or debt, "the thing spoken of is precisely the same in both cases, the one or the other word being used according as the situation is being looked at from the point of view of the creditor or of the debtor."
it happens due to "buy the rumor, sell the news" effect. On the other hand, if the Fed is particularly dovish -- moreso than the market expects -- generally but not always you can see yields fall.
as mentioned:
Treasuries are issued by the Treasury.
Also, the Fed manipulates rates by buying and selling Treasuries in "OMO - Open Market Operations" for the "SOMA - System Open Market Account"
as mentioned:
increased excess supply would potentially send rates higher, except that right now there is more deman than Treasuries are sold in their auctions. So, right now the market is not adjusting prices due to supply "excesses." The results of Treasury auctions are available on their web site and are discussed on CNBC. Graphs of Treasury yields are available in lots of places. compare the auction yield on that day to the data point on the yield chart. The most popular chart would be the ten year.
you are ok up to the point of the Fed issuing debt. The Treasury issues Treasuries to fund their massive budget deficits, stupid overpayment because companies are ripping them off, etc.
Treasury - Treasuries.
as mentioned in other posts and above, as prices (demand) go up, rates go down.
Also, I think you can see that more unwanted supply would mean lower debt prices just like in the stock market. Also, more unwanted supply would mean that the rates on those bonds would have to be higher to attract buyers. As people sell treasuries the prices fall and the yields go up. There is an inverse relationship to price direction and yield direction. This was explained in an earlier post.
This is basic bond knowledge. Take a read on the basics of fixed income investing.
Good synopsis MsMorrisine. After 15 years of writing the same retorts on this forum my propensity for verbosity has waned. Thanks for the constructive discourse.
Knowledge is the enemy of fear
Maybe time for an analogy?
Why would I pay $10 to park my car for a couple hours downtown?
I could park at a meter for $2, or for free a few blocks away..
But! I'd be risking getting a ticket ($50+) getting hit and run ($1000+) or having it stolen ($#*@#!!)
I pay the guaranteed loss to save the risk of losing far more.
A small negative interest paid to a huge relatively safe entity is a way for a smaller but also large entity to park lots of money for a minor fee, to avoid potentially much more in losses if parked somewhere else.
Liberty: Parent of Science & Industry
That sounds like insurance Baley.
Knowledge is the enemy of fear
sounds like gold. LOL
Keep an open mind, or get financially repressed -Zoltan Pozsar
15 days (let alone 15 years) of writing retorts anywhere would lower my propensity to visit. I'd be seeking a forum consisting of more like-minded individuals. But, I guess, whatever gives one a thrill up the leg...
LoL indeed. To me it sounds like rent (of the space) and paying for a service (lot attendant and security camera). But what does it matter the category or label? Why do we need sophistry about the concept? It makes sense to do for the doer.
That's enough rationality for most, but of course it's fun to banter and tease simetimes, isn't it?
People buy gold or negative rate bonds or insurance because it makes sense To ThemSelves to do so. Right?
Liberty: Parent of Science & Industry
I ❤❤❤❤❤❤ derryb
Knowledge is the enemy of fear
pay the guaranteed loss to save the risk of losing far more
Knowledge is the enemy of fear
you are ok up to the point of the Fed issuing debt. The Treasury issues Treasuries to fund their massive budget deficits, stupid overpayment because companies are ripping them off, etc.
Correct about treasury issuance. My mis-statement.
Yes. After awhile, the byzantine nature of the whole scheme begins to obfuscate what goes on. That's by design. Talk of money creation begins to intersect with bond issuance, keystroked currency to purchase said bonds, bond prices, discounting, market forces, capital flows, negative rates, inverted yield curves.
Yes, it's easy to get twisted around, and it's also easy to have your statements twisted around in a different context.
I pay the guaranteed loss to save the risk of losing far more.
A small negative interest paid to a huge relatively safe entity is a way for a smaller but also large entity to park lots of money for a minor fee, to avoid potentially much more in losses if parked somewhere else.
So be it. You've just accepted another tax, and the time value of your money is being stolen from you. If you're okay with that, I suppose it's all good. It doesn't jive with classical finance. Don't ever start thinking that it's normal.
Blackrock's CEO is now saying that instead of default, the plan is to inflate. Figure that into your plans. Figure that into your expectations for bond prices and the impact on the stock market. Gold may not be the answer either, but it's at least something real.
To me it sounds like rent (of the space) and paying for a service (lot attendant and security camera). But what does it matter the category or label? Why do we need sophistry about the concept? It makes sense to do for the doer.
So...….Baley……..what was it when the bank paid you 4% interest on your savings account? Was that somehow irrational? You do realize that the regs have been altered such that the money you keep on deposit no longer belongs to you - it's an unsecured loan to the bank now - you do realize that, don't you?
To me, that is corruption. Not rent.
I knew it would happen.
David Stockman explains how the bond market is about to bring the whole shibang to it's knees
"The speculators are now moving into the global bond market, chasing price. And of course, as the prices rise, the yields collapse. That’s how we’re getting nominal negative yields. No one has really issued that much debt with a negative coupon. They’ve issued debt with low coupons that then trade up way above par, driving the current yield into negative territory."
"It’s the mother of all bond market bubbles. And it’s not just that speculators have driven the price of almost all sovereign debt way above par. It’s going to come back to par, either when the market corrects or when the bonds are redeemed—and somebody’s got a capital loss of large magnitude sitting right on their balance sheet at the moment."__
Keep an open mind, or get financially repressed -Zoltan Pozsar
https://www.wsj.com/articles/germany-for-first-time-sells-30-year-bonds-offering-negative-yields-11566385847
Jmsk52 said,
My mis-statement.
>
Once i realized that everything is a jamberwahookin, i learned to cordially banter with those who insist that it is a bazoolamplenix.
So, it's cool 😎
Liberty: Parent of Science & Industry
One comment about the Stockman interview: many of the world's largest holders of bonds, in particular, insurance companies and pension funds, would be thrilled if a/the primary driver of negative rates was trading/speculation/playing chicken, etc. Their biggest fear is that it is something more fundamental. They would almost certainly prefer to deal with the aftermath of a bursting bubble than the thought that very low rates are the new normal.
Also, I'm not sure that things are as leveraged as Stockman suggests.
Finally, Stockman has a long history of predicting doom and gloom. How good is his track record?
Boils down to whether you believe the economy is doing as great as "they" say it is. I do not. I suspect a lot of questions, including yours, will soon be answered.
What's the difference between issuing economic warnings and predicting gloom and doom? If I tell my kid that his runaway debt is gonna bankrupt him, am I predicting gloom and doom?
Keep an open mind, or get financially repressed -Zoltan Pozsar
If I tell my kid that his runaway debt is gonna bankrupt him, am I predicting gloom and doom?
The difference is that your kid may not subscribe to Modern Monetary Theory and have his hands on the controls of the imaginary money generating machine and the propaganda machine that's attached to its output chute.
I knew it would happen.
Not a Stockman article. Lol.
🤪🤪🤪
It’s going to come back to par, either when the market corrects or when the bonds are redeemed—and somebody’s got a capital loss of large magnitude sitting right on their balance sheet at the moment
Haha....he doesnt know much about math either.
What is difference in current price and par? Then add back interest payments.
Yup...large magnitude loss. Lol.
Knowledge is the enemy of fear
While some are issued with negative yields, I do agree the nearly all of it is traded down through zero.
It is bothersome to know the yield curves in several countries are all underwater.
I do wonder if this is piling on. These are capital gains in bonds people are holding. There is some amount of fear of a global recession though. I guess we will see what's what.
Yes, MsMorrisine, yields are too low and could be bubblicious, which if burst would result in higher yields. And thats actually a good thing.
Knowledge is the enemy of fear
Stockman discusses trade imbalances and the end results of MMT - both of which have caused negative rates, yield curve inversion, and the looming bond market destruction.
Excellent point about how the perception of the bond market being safe vs. the risky stock market - have flipped. He's on target about the ramifications for stocks when the bond market corrects.
Not a Stockman article. Lol.
No, it's a Casey piece. An interview with Stockman. From your reaction, I assume that you don't adhere to any of it. So, your point?
I knew it would happen.
Why would anyone invest in anything that offers a negative return? Probably because they think the negative return will have more value than the currency at the time of yield payout. Talk about confidence in your currency, LOL. Another good sign for PMs.
Keep an open mind, or get financially repressed -Zoltan Pozsar
Well, silver has had a negative return over the last decade.
Knowledge is the enemy of fear
I believe his point is that he's smarter than the former White House budget director. Heck, he's smarter than everyone he doesn't agree with.
Keep an open mind, or get financially repressed -Zoltan Pozsar
Not following Stockman has been financially advantageous.
Knowledge is the enemy of fear