Re:As German Bund Yields Head to Zero, They Still Beat U.S. ...
by IkmoIkmo on Saturday February 09, 2019 @01:05PM
(#19123653)
Because it's a non-negative return
Because the ECB had negative rates for a while, i.e. some parties had to pay to hold cash.
And lastly, because economic developments which don't affect cash, may affect bonds. i.e. if the interest rates drop, existing bonds will become more valuable. I don't expect this to happen, but the point is that you don't just buy bonds for their return today, but also in expectation for their relative return compared to the rest of the bond market in the future, i.e. their future value. That doesn't apply to cash in the same way.
Because the ECB had negative rates for a while, i.e. some parties had to pay to hold cash.
And lastly, because economic developments which don't affect cash, may affect bonds. i.e. if the interest rates drop, existing bonds will become more valuable. I don't expect this to happen, but the point is that you don't just buy bonds for their return today, but also in expectation for their relative return compared to the rest of the bond market in the future, i.e. their future value. That doesn't apply to cash in the same way.