News for hackers. Stuff that matters.

A comment on Germany for First Time Sells 30-Year Bonds Offering Negative Yields. Parent comment

Re:Germany for First Time Sells 30-Year Bonds Offering Negat... by Mvhsz on Wednesday August 21, 2019 @02:36PM (#20760119)
That makes sense but I have a follow up question. What forces this? For example, what's to stop a single entity from reaping the rewards of using cash while everyone else buys bonds to keep the economy moving. Is it a government regulation? an agreement between large institutions? or are the gains to each individual entity large enough that the negative yield is worth it?
[ Parent | on HN ]
Re:Germany for First Time Sells 30-Year Bonds Offering Negat... by boxy310 on Wednesday August 21, 2019 @03:15PM (#20760559)
Cash or a bank demand account is not without their own inherent risks. A fire, robbery, or forced currency exchange could destroy the value of the physical commodity of cash, and the FDIC only insures individual account bank deposits up to a certain limit so a bank institution failure could cause losses to individual accounts.
[ Parent | on HN ]
Re:Germany for First Time Sells 30-Year Bonds Offering Negat... by Mvhsz on Wednesday August 21, 2019 @04:00PM (#20761065)
Ok you're arguing that there is no such thing as a liquid store of value that that offers a better return than a negative yield government bond?

So let's say I'm a bank with a stack of 1B in high denomination central bank notes. I calculate the rate of return as zero minus the annual cost of securing those and the annual risk that they are stolen or destroyed. Inflation isn't a factor because the bond is in the same currency. Based on your explanation that rate of return will be lower than the -0.11% that I would get from a german 30 year bond today. And there's simply nothing I can exchange those central bank notes for that would do any better than the bond.

Like OP I've never understood negative yield debt and I'm trying really hard to.

[ Parent | on HN ]
Re:Germany for First Time Sells 30-Year Bonds Offering Negat... by YawningAngel on Wednesday August 21, 2019 @04:53PM (#20761708)
Arguably, the combined cost and risk of loss when you store a pile of cash in a secured cellar is greater than 11bp.

There's also the fact that bonds can appreciate, so even if on the face of it you're taking an 11bp hit that might not be true in practice.

[ Parent | on HN ]