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This means that lending money to the German federal government is considered less risky than just “holding onto your money”. You might think of money as a physi
by qubex 7y ago
This means that lending money to the German federal government is considered less risky than just “holding onto your money”. You might think of money as a physical asset (cash), but really it’s far more varied, and for amounts that exceed insured deposit thresholds, you are not protected by the risk of failure (or “bail-in”) of a banking institution. Besides, as others have pointed out, these make little sense from the point of view of an individual investor and are going to be parts of more integrated risk-calibrated portfolios of assets.
- camjw 7y agoI think with quantitive easing this analogy isn’t really true anymore: there is a guaranteed buyer (the ECB) propping up the price of German sovereign debt, so making the yields artificially low.
- qubex 7y agoI’ll definitely grant you that quantitative easing complicates the picture, but i it does so in ways far more complicated than you describe: firstly, the ECB buys at secondary-market prices, so the “flight to quality” effect is still there, albeit perhaps in muted form; furthermore, keep in mind that the ECB can and probably will resell those bonds that it does purchase at a later date when it will want to wind down it’s balance-sheet. Other effects also apply. Negative yields however probably do represent a true aversion to risk on behalf of investors, in some capacity or another.