5 ms·

What I didn't get from the article is a "so what". Why does this matter? Or maybe they did explain why it matters, and I just don't have enough knowledge to und

What I didn't get from the article is a "so what". Why does this matter? Or maybe they did explain why it matters, and I just don't have enough knowledge to understand.

mruts 8y ago
It probably doesn’t to most people. But since Bloomberg is primarily a financial services company, they write articles for finance professionals (mostly). Even so, I think it’s a little disingenuous to compare EUR denominated T-notes with Bundes (which are natively EUR denominated). Of course if they just compared regular T-notes, with Bundes, they really wouldn’t be a story since T-notes are paying a great rate compared to any other government bonds.
jboydyhacker 8y ago
It keeps artificial support under the euro. If it were to reverse any time soon you could see a big shift in the dollar vs the Europe. There are some early signs this might occur with changes in LIBOR recently.
fauigerzigerk 8y ago
What makes this article a bit confusing is that they give an answer without making it clear what the question was. Here's the missing question: Imagine you are a Eurozone pension fund or life insurer. You have to invest billions of euros very safely and eek out a return that is no less than inflation. How do you do that? Inflation (HICP) was 1.73% in 2018. German Bunds, the safest euro denominated investment with sufficient volume, yield close to 0%. Now you look across the Atlantic and find that 10 year treasuries yield 2.63%. The problem is that simply investing in treasuries wouldn't work because currency fluctuations would likely dominate any interest income. So you would need to hedge the currency. The Bloomberg article is about why hedging the EUR/USD currency pair is currently too expensive for this idea to work. It matters for European savers, including everyone who is paying into a defined contributions pension (e.g most workplace pensions). A significant chunk of those savings currently yields negative returns. The alternative is to take a lot more risk than you want to or are allowed to take.
- fuckyah 8y ago
  You invest in a total market stock index fund. Good choices are VTSAX or VTWAX :P
- fbonetti 8y ago
  Why bother investing it at the point? What’s the advantage over holding cash?
  - IkmoIkmo 8y ago
    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.
  - JumpCrisscross 8y ago
    > What’s the advantage over holding cash? Where do you hold the cash? Physically? As deposits in a bank? “Cash” is short hand. This article debates different forms of cash. (OTR sovereign bonds are usually considered cash.)
    - JDiculous 8y ago
      How is a bond the same thing as cash? I can't walk into a supermarket and buy a loaf of bread with a sovereign bond.
      - drcharris 8y ago
        In the world of finance, "cash" is often shorthand for "cash or cash equivalents". Instead of the usual layperson interpretation where cash is "a bunch of currency, either physically in my hand or in a bank account", the meaning here is "stuff with incredibly low risk" i.e. you can be very sure that you'll not lose money over time. Sovereign debt, including bonds, is regarded as the safest type of debt and therefore falls into the 'risk-free' bucket in the finance world. Since cash is usually regarded as risk-free, the word "cash" has come to be a short-hand for "(almost entirely) risk-free assets".
shaki-dora 8y ago
It answers the question: „I am a European investor and want to just park my money without any risk. But US bonds pay much better interest. Can I just buy them?“

What I didn't get from the article is a "so what". Why does this matter? Or maybe they did explain why it matters, and I just don't have enough knowledge to understand.

mruts 8y ago

It probably doesn’t to most people. But since Bloomberg is primarily a financial services company, they write articles for finance professionals (mostly). Even so, I think it’s a little disingenuous to compare EUR denominated T-notes with Bundes (which are natively EUR denominated). Of course if they just compared regular T-notes, with Bundes, they really wouldn’t be a story since T-notes are paying a great rate compared to any other government bonds.

jboydyhacker 8y ago

It keeps artificial support under the euro. If it were to reverse any time soon you could see a big shift in the dollar vs the Europe. There are some early signs this might occur with changes in LIBOR recently.

fauigerzigerk 8y ago

What makes this article a bit confusing is that they give an answer without making it clear what the question was. Here's the missing question: Imagine you are a Eurozone pension fund or life insurer. You have to invest billions of euros very safely and eek out a return that is no less than inflation. How do you do that? Inflation (HICP) was 1.73% in 2018. German Bunds, the safest euro denominated investment with sufficient volume, yield close to 0%. Now you look across the Atlantic and find that 10 year treasuries yield 2.63%. The problem is that simply investing in treasuries wouldn't work because currency fluctuations would likely dominate any interest income. So you would need to hedge the currency. The Bloomberg article is about why hedging the EUR/USD currency pair is currently too expensive for this idea to work. It matters for European savers, including everyone who is paying into a defined contributions pension (e.g most workplace pensions). A significant chunk of those savings currently yields negative returns. The alternative is to take a lot more risk than you want to or are allowed to take.

fuckyah 8y ago
You invest in a total market stock index fund. Good choices are VTSAX or VTWAX :P
fbonetti 8y ago
Why bother investing it at the point? What’s the advantage over holding cash?
- IkmoIkmo 8y ago
  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.
- JumpCrisscross 8y ago
  > What’s the advantage over holding cash? Where do you hold the cash? Physically? As deposits in a bank? “Cash” is short hand. This article debates different forms of cash. (OTR sovereign bonds are usually considered cash.)
  - JDiculous 8y ago
    How is a bond the same thing as cash? I can't walk into a supermarket and buy a loaf of bread with a sovereign bond.
    - drcharris 8y ago
      In the world of finance, "cash" is often shorthand for "cash or cash equivalents". Instead of the usual layperson interpretation where cash is "a bunch of currency, either physically in my hand or in a bank account", the meaning here is "stuff with incredibly low risk" i.e. you can be very sure that you'll not lose money over time. Sovereign debt, including bonds, is regarded as the safest type of debt and therefore falls into the 'risk-free' bucket in the finance world. Since cash is usually regarded as risk-free, the word "cash" has come to be a short-hand for "(almost entirely) risk-free assets".

shaki-dora 8y ago

It answers the question: „I am a European investor and want to just park my money without any risk. But US bonds pay much better interest. Can I just buy them?“