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Germany Sells Five-Year Debt at Negative Yield for First Time on Record

Bill Greiner
Forbes - 3/12/2015
"Nega-Coups" And The Implications Of Negative Interest Rates On The Global Economy - Forbes

What do you call a bond which carries a negative interest rate? It’s called a “nega-coup,” short for negative coupon. Negative coupons, or interest rates on bonds, is a rather novel reality in today’s sovereign debt (government backed) market. These are government bonds (mostly issued in Europe and Japan) where the investor is guaranteed to lose money if the bond is held to maturity.
Let me give an example.
Currently, German two-year government bonds are yielding -0.21%. If an investor purchased $10,000 of these bonds, they would receive $9,958 back in two years. That return is guaranteed by the German government. Recently, interest rates out to nine years were negative in Switzerland. Germany’s rates were negative out to six years, Denmark out to five years, and Sweden out four years.
[.......]
Nega-coups are not new. Certain interest rates in Sweden were negative from 2009 – 2010. The same was true in Denmark from 2012 – 2014, and now Germany, Finland and Switzerland all are issuing bonds with negative attached interest rates. According to the Wall Street Journal, 16% of all outstanding government bonds (on a global level) currently carry negative yields.

The nega-coup concept violates a long-held economic presumption that interest rates cannot go below 0%. Why? In theory, if an investor has to pay someone to simply “hold” their money, the investor will forgo savings and increase consumption as their wealth is bound to decline in the future. That is the theory…which has now gone out the window.

Why Negative Interest Rates Are Happening
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joG said:
Thank Hank Paulson for that. After all, credit should be given thise to whom it is due.
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Anything that is good = Obama is responsible and did it personally.
Anything that is bad = Bush/Republicans did it.

Wise up man!!!!!
 

And what money manager is making that 'investment?' I suspect that there are none. The only ones that would buy this junk are other central banks.
 
Fletch said:
And what money manager is making that 'investment?' I suspect that there are none. The only ones that would buy this junk are other central banks.
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If you are Rich and Live in, ie, Brazil etc, and your currency is devaluing 10% a year (faster than its growing), buying German bonds a relatively good buy. You're buying the currency/safety.

Another: Many German citizens, like Japanese and others, like to buy only their own countries sovereign debt.

Another: Short term US Rates went negative during the recession, and Some Banks Charged large depositors to hold their money.. for Safety sake.

Another: Should, ie, the EU break up and you have German bonds, you'll get German Marks that are worth having, more than Greek Drachma or Italian Lira.

For just a few examples.
Me, I'd never do it.
One reason Blue Chip Commercial Real Estate is so high, is that the interest rates are so low.
 
Chainsaw said:
Anything that is good = Obama is responsible and did it personally.
Anything that is bad = Bush/Republicans did it.

Wise up man!!!!!
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The irony is if we are talking about the economy what you said is very true. 60 months of job growth is unprecedented. History shows we almost certainly would be in another downturn had a Republican been elected. It is not a coincidence either.

The Republican Recession | The New Republic
 



Euro Area Government Debt to GDP | 1995-2015 | Data | Chart | Calendar


Oh yeah, the EU was so frugal...NOT.
 

Wrong.



Euro Area GDP | 1960-2015 | Data | Chart | Calendar | Forecast | News




Euro Area Government Budget | 1995-2015 | Data | Chart | Calendar


True, the GDP fell just over 10% in 2009, but debt to GDP went up about 14%.

And compare 2008 to 2010, the latter GDP was slightly higher then in 2008, yet spending as a percentage of GDP skyrocketed.

This austerity you speak of is in name only.


Pleaae stop guessing when you speak and you will save us both lots of time.
 
Chainsaw said:
Anything that is good = Obama is responsible and did it personally.
Anything that is bad = Bush/Republicans did it.

Wise up man!!!!!
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Bush is at fault for that too!

But Obama is trying to steal that cookie.
 

Do you know off hand, if that is PPP data? Otherwise i can look it up, when I get home. But if you know.
 
Things did get more interesting.
An amazing development.
Due to Negative interest rates, in some cases, banks have to Pay borrowers!

Tumbling Interest Rates in Europe Leaves Some Banks Owing Money on Loans to Borrowers
Subzero rates have put some lenders in an Inconceivable position
PATRICIA KOWSMANN in Lisbon and JEANNETTE NEUMANN in Madrid
Updated April 13, 2015 7:13 p.m. ET
Tumbling Interest Rates in Europe Leaves Some Banks Owing Money on Loans to Borrowers - WSJ
 
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OK Mr Finance Wizard, here's your chance to shine. Why does something like this happen? I am not asking that as some sort of insult or smart remark. I am sincerely asking so that I can understand what makes this sort of thing happen.
 

First of all. HAHAHAH total fail in looking at the situation.

Secondly, GDP falls because of a contraction of the private sector. Now the public sector will increase because of higher unemployment and the higher cost involved with this. Now this cost increase means at least in the short run, that any austerity in the public sector is counter-weighed by the rise in unemployment payments and other related payments.

Basically, fire 100k public workers, and you go from paying them wages to unemployment because the private sector aint gonna hire them as they also are shedding workers.

Thirdly because you are using total "euro" area, you do not distinguish between individual countries and that causes a number of problems. Not to mention the use of % of GDP is often really bad idea when GDP is going all over the place. It of course works both ways... when there is suddenly growth in the economy, then the total debt vs GDP will fall fast as hell, yet the actual number wont... but you know that right?

And compare 2008 to 2010, the latter GDP was slightly higher then in 2008, yet spending as a percentage of GDP skyrocketed.
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And you dont know why? Open your eyes.... and look a the explanation above.

This austerity you speak of is in name only.
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Bull****. It seems to me that so many right wingers have no idea how a basic economy fits together... they all think it is so freaking simple .. just cut, and those cuts have no consequences what so ever on the overall economy. And austerity has as much to do with intent, as it has to do with actually cutting the fat.

For example, in Spain they have been cutting deep into the public sector, especially around hospitals and schools. This has caused less workers in those areas, less resources... which in turn means higher unemployment among people related to those sectors, which means more unemployment insurance and other help to those out of work. Oh dont forget that because those people are out of work, then that means they spend less.. which means the places where they usually spend, have less revenue, so they have to cut workers as well... who then need unemployment insurance as well.

So sure, cut unemployment insurance as well.. that will get them of their lazy asses no?.. oh they have, but you can also cut too much and that will cause social problems across the board.. including riots and worse. And you would say so what.... they should just find work right? Well a bit hard when there is none, because there is no demand for goods and hence the will to hire people .. but I guess they could join the police to stop the riots..oh wait, the police is also hit by austerity so there has been a hiring freeze and wage freeze there, so chances are that the police might actually join the rioters. Okay, join the military right? They can beat the population into line right? Oh wait, that has been cut also..

But hey, at least the 1% got tax cuts right?
 

Generally if someone buys into that, it's because of safety (instead of putting money into more volatile places where they can lose even more). So although that sounds ****ty to most people, you'll be surprised that some want to buy into that.
 
joG said:
Negative interest rates are interesting., aren't they? But even low rates are not the sign that all is well.
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Where is the money flowing from?
 
cpwill said:
Where is the money flowing from?
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One flow is from the Fed to government via the purchase of Treasuries. The government then spends it on goods and services or subsidies. But the effect that pushes down interest rates is the Fed hemorrhaging money in various directions.
 

Yep. But for those whom think unregulated capitalism is all that and a bag of chips, we have no concerned about foreign owned American assets.

Along with CNOOC, which is 100-percent owned by the communist Chinese government, Sinopec Group also is purchasing energy interests in the U.S.

Sinopec Group is the largest shareholder of Sinopac Corporation, a state-owned investment company incorporated in 1998 largely to acquire and operate oil and natural gas interests worldwide.


Read more at Obama lets Chinese own U.S. energy resources
 
joG said:
One flow is from the Fed to government via the purchase of Treasuries. The government then spends it on goods and services or subsidies. But the effect that pushes down interest rates is the Fed hemorrhaging money in various directions.
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How does the purchase of treasuries flow money into German public debt?
 
cpwill said:
How does the purchase of treasuries flow money into German public debt?
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I was actually referring to the US, but maybe I had misread the thread. In any event, the EZB is now doing the same things the Fed experimented with. So the statement holds for Euroland as well with certain important structural differences. The main two are that in Euroland there is less free movement of labor and very little fiscal help from the center or other member countries. This means that while the EZB is hemorrhaging money the fiscal spending is much more regionally confined than in the US. This means that the economic imbalances are much harder to correct for, making the Euroland experiment quite different, though, the central bank instruments are the same.
 
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