Trying To Wrap My Brain Around Negative Bond Yields

@cohodk said:

@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.

And I'm still betting it will offer a better payout than the dollar when I cash in.

@derryb said:

@cohodk said:

@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.

And I'm still betting it will offer a better payout than the dollar when I cash in.

Most of us have lots of bets spread around the great roulette wheel of the available investments.

Sure, have some chips on silver, far far more than most players, but not nearly as many as derryb.

Most of my concentration is in the stock market, rental real estate, and private equity as a founder and angel. Then numismatic coins then bullion, followed by Stuff like cars, art, artifacts, ets. So to answer jmski52, the interest rate on bonds and savings accounts hasn't mattered, relatively speaking. Its just the first safety net, and preserving capital and maintaining instant liquidity is far more important for those particular dollars than a percentage or two. Cashing rent checks and harvesting capital gains as passive income is doing the heavy lifting, off and on, for 40+ years

Here are two reasons that may help explain why inflation is muted and interest rates continue to trend lower:

https://cnbc.com/2019/02/27/theres-been-a-mysterious-surge-in-100-bills-in-circulation-possibly-linked-to-global-corruption.html

“The number of outstanding U.S. $100 bills has doubled since the financial crisis, with more than 12 billion of them across the world, according to the latest data from the Federal Reserve.”

My take: This increase, coupled with a similar increase in $20 bills, amounts to a total increase of over $720 billion in physical U.S. currency over the last 10 years. The increased supply of currency reflects an increased worldwide demand for U.S. dollars (for a variety of reasons), and implies a much larger increase in demand for U.S. treasury bonds, which (so far) pay a positive interest rate. This heavy demand for official U.S. currency and debt instruments is outpacing newly issued supply, even at a $1 trillion rate of annual increase. This is putting upward pressure on treasury bond prices, and consequently is putting downward pressure on the interest rate these bonds pay.

https://cnbc.com/2017/06/28/technology-is-the-hidden-driver-of-low-inflation-blackrocks-rieder.html

“While granting that demographic shifts are part of the equation, BlackRock’s chief investment officer of global fixed income, Rick Rieder, argues that technological innovation tamps down profoundly on widespread price increases.”

My take: A rapid increase in cost-lowering innovations across the entire world economy is driving prices down almost as fast as government printing presses are driving prices up. I expect this trend to continue and even accelerate. If it does, inflation and interest rates are likely to remain low, and perhaps even negative for “safe” securities such as U.S. treasury bonds.

@cohodk said:
Yes, MsMorrisine, yields are too low and could be bubblicious, which if burst would result in higher yields. And thats actually a good thing.

Depending on who you are and how financially independent you are, it may be a good thing. For the majority, I doubt it would be a good thing to happen.

@ShadyDave said:

@cohodk said:
Yes, MsMorrisine, yields are too low and could be bubblicious, which if burst would result in higher yields. And thats actually a good thing.

Depending on who you are and how financially independent you are, it may be a good thing. For the majority, I doubt it would be a good thing to happen.

Rates at 3% are more beneficial to everyone than rates at -1%.

And 4% would be better yet.

No one. No one, benefits from negative rates.

@MsMorrisine said:
nemefita is now a word

If Trump can do it, then so can I. Lol

I thought i had edited that. Lol

@cohodk said:

No one. No one, benefits from negative rates.

The people/entities issuing the debt at -1% definitely do benefit.... but I know I'm splitting hairs at this point.

@cohodk said:

No one. No one, benefits from negative rates.

Except for financially irresponsible individuals and governments. And look for corporations to use negative interest loans to continue pumping the equity markets with further stock buybacks.

Negative rates are the latest tool to delay the inevitable.

Governments don't benefit from negative rates on their bonds?

I said nothing about corporate debt going negative.

@MsMorrisine said:
negative yielding corporate debt has already been issued in Europe.

https://www.cnn.com/2019/08/30/investing/siemens-corporate-bond/index.html

most likely because it has to compete with negative public debt.

https://www.bloomberg.com/news/articles/2019-09-11/bond-wizards-find-exotic-ways-to-profit-from-negative-yields

Lots of great commentary in this thread this morning...…..

My take: A rapid increase in cost-lowering innovations across the entire world economy is driving prices down almost as fast as government printing presses are driving prices up.

I agree with you halfways. I think agricultural productivity (and oil production) both drive prices down. Not so sure about innovation anymore, kinda depends on what types of innovation.

@Baley, re: buying bonds & drinking hemlock - don'cha do it. You'll be sorry. :'(

Rates at 3% are more beneficial to everyone than rates at -1%.
And 4% would be better yet.
No one. No one, benefits from negative rates.

OMG, I agree with cohodk!!!!!!!!!!!!!!!

@cohodk said:
No one. No one, benefits from negative rates.
Except for financially irresponsible individuals and governments. And look for corporations to use negative interest loans to continue pumping the equity markets with further stock buybacks.
Negative rates are the latest tool to delay the inevitable.

I also agree with derryb.

@derryb said:
Governments don't benefit from negative rates on their bonds?
I said nothing about corporate debt going negative.
No, they dont. Yes you did.

Yes they do. Yes you did.

Issuing zero coupon bonds has been done for decades. Thats not the same as issuing a negative coupon. I know you know the difference.

I don't know that zero coupon bonds allow for anything different than what the plethora of other types of bonds allow for already. Either way, financial derivatives should be outlawed and governmental casinos should operate openly - call it what it is.

Those that think negative interest rates help govts do not see the damage tha is being done to the socio-economic constructs. That damage is orders of magnitude greater than interest not paid.

In fact, jmski, if you truly believe a 3% interest rate would be better than negative rates, then this damage should be quite evident to you.

Zero coupon bonds are.not derivatives.

True enough, but there's no reason that other bonds issued with a coupon wouldn't serve the same purpose.

Those that think negative interest rates help govts do not see the damage tha is being done to the socio-economic constructs. That damage is orders of magnitude greater than interest not paid.
In fact, jmski, if you truly believe a 3% interest rate would be better than negative rates, then this damage should be quite evident to you.

Agreed. Negative interest rates issued by a government destroy the whole "time value of money" paradigm, which is in fact based upon reality. Nothing good will come of it.