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"The bonds of many other countries have actually gone negative, with lenders paying for the privilege of lending to governments for years." Do people actually

"The bonds of many other countries have actually gone negative, with lenders paying for the privilege of lending to governments for years." Do people actually invest in these bonds? Why would they not put it in a safer, positive returning, investment like US bonds?

Scarblac 7y ago
Presumably they expect the dollar to decrease in value, leading to the same thing.
danieltillett 7y ago
I don’t think too many people invest in these bonds, but banks that are forced to hold government bonds do.
Armisael16 7y ago
If your pension doesn’t pay out in dollars (ie, you’re a German pension) then you’re exposed to swings in the dollar-euro exchange rate. If the Euro appreciates relative to the dollar but you’re holding T-bonds, you lose money.
rjtavares 7y ago
If you deal in Euros, US bonds are in no way safe.
calpaterson 7y ago
One reason is that many funds have mandates that require them to (for example) stay in EUR and have x% in government bonds.
antientropic 7y ago
Of course people invest in those bonds. After all, if they didn't, those countries would have to offer a higher interest rate.
onaraft 7y ago
The gist of it is that if you have 1, 10, or even 100 thousand dollars in cash, sure you can sit that in your bank and probably earn ~0% interest, but at least it's not negative. But if you have 100M in [edit: $your_native_currency], you aren't going to put it in a retail bank account, you're not going to put it in your mattress, and so you have only a few options: 1. Stocks/derivatives: If you were holding cash already, you're probably not comfortable with the risk profile of any of this stuff 2. Bonds - this exposes you to the slight negative interest rate 3. Corporate bank account - you might be able to avoid a negative interest rate here as well, but only because you're passing the buck (literally) to the bank, who then has to pick 1 or 2. 4. Actually use the money yourself, in your business. The whole point of the NIRP (negative interest rate policy) is to push people to pick 3 or 4, and if 3, then for the banks to pick 1 or 4. I just reread your question, and realized I didn't fully answer it. Investing in foreign bonds exposes you to exchange rate risk. I was sorta hand-waving it into 1 since it's basically like doing both bonds and forex. Not very appealing if your risk appetite is "preferably cash or govt bonds". I feel obligated to include a disclaimer that this isn't investment advice and that monetary policy is immensely complicated and this is just the high-level thinking of the point of NIRPs.
- bryanrasmussen 7y ago
  I guess the negative is also tax deductible. so there might be an additional reason there? on edit: punctuation
- asah 7y ago
  bitcoin! /s
- hajile 7y ago
  That seems like a risky strategy. The gamble would be that the government loses loan "revenue" in the short-term and makes up with business taxes. Is that a good gamble in weak or service-oriented economies? What are all the risk factors there?
  - onaraft 7y ago
    To be clear, this is a central bank thing. The part of the government issuing debt doesn't technically have a say in it. The Federal Reserve bank sets the Federal Funds rate. This is their "target rate" they will try to hit. They accomplish this by using their position as the central bank to "print" (not literally, it's a credit system, I'm hand-waving) money to bid on bonds. In the same way that lots of investors clamoring to lock-in rates on long bonds can bid their yield down, the federal reserve using their funny money to bid on treasuries also bids their yield down. And when the fed wants the rates below zero, they bid them to below zero. These are called "Open Market Operations".
retube 7y ago
> Do people actually invest in these bonds? Absolutely > Why would they not put it in a safer, positive returning, investment like US bonds? At a minimum you are exposed to the exchange rate with your domestic currency, and FX can be volatile - developed market currencies can easily move a few percent in one week - compare that to the Treasury yield of c.2%/year. PLus you are exposed to US macro-environment and interest rates which may be totally unrelated or risk-additive with respect to your investment strategy. Even +ve yielding bonds are losing money in real terms. People buy german bunds and swiss govvies at negative yields as they are a save haven.

Scarblac 7y ago

Presumably they expect the dollar to decrease in value, leading to the same thing.

danieltillett 7y ago

I don’t think too many people invest in these bonds, but banks that are forced to hold government bonds do.

Armisael16 7y ago

If your pension doesn’t pay out in dollars (ie, you’re a German pension) then you’re exposed to swings in the dollar-euro exchange rate. If the Euro appreciates relative to the dollar but you’re holding T-bonds, you lose money.

rjtavares 7y ago

If you deal in Euros, US bonds are in no way safe.

calpaterson 7y ago

One reason is that many funds have mandates that require them to (for example) stay in EUR and have x% in government bonds.

antientropic 7y ago

Of course people invest in those bonds. After all, if they didn't, those countries would have to offer a higher interest rate.

onaraft 7y ago

The gist of it is that if you have 1, 10, or even 100 thousand dollars in cash, sure you can sit that in your bank and probably earn ~0% interest, but at least it's not negative. But if you have 100M in [edit: $your_native_currency], you aren't going to put it in a retail bank account, you're not going to put it in your mattress, and so you have only a few options: 1. Stocks/derivatives: If you were holding cash already, you're probably not comfortable with the risk profile of any of this stuff 2. Bonds - this exposes you to the slight negative interest rate 3. Corporate bank account - you might be able to avoid a negative interest rate here as well, but only because you're passing the buck (literally) to the bank, who then has to pick 1 or 2. 4. Actually use the money yourself, in your business. The whole point of the NIRP (negative interest rate policy) is to push people to pick 3 or 4, and if 3, then for the banks to pick 1 or 4. I just reread your question, and realized I didn't fully answer it. Investing in foreign bonds exposes you to exchange rate risk. I was sorta hand-waving it into 1 since it's basically like doing both bonds and forex. Not very appealing if your risk appetite is "preferably cash or govt bonds". I feel obligated to include a disclaimer that this isn't investment advice and that monetary policy is immensely complicated and this is just the high-level thinking of the point of NIRPs.

bryanrasmussen 7y ago
I guess the negative is also tax deductible. so there might be an additional reason there? on edit: punctuation
asah 7y ago
bitcoin! /s
hajile 7y ago
That seems like a risky strategy. The gamble would be that the government loses loan "revenue" in the short-term and makes up with business taxes. Is that a good gamble in weak or service-oriented economies? What are all the risk factors there?
- onaraft 7y ago
  To be clear, this is a central bank thing. The part of the government issuing debt doesn't technically have a say in it. The Federal Reserve bank sets the Federal Funds rate. This is their "target rate" they will try to hit. They accomplish this by using their position as the central bank to "print" (not literally, it's a credit system, I'm hand-waving) money to bid on bonds. In the same way that lots of investors clamoring to lock-in rates on long bonds can bid their yield down, the federal reserve using their funny money to bid on treasuries also bids their yield down. And when the fed wants the rates below zero, they bid them to below zero. These are called "Open Market Operations".

retube 7y ago

> Do people actually invest in these bonds? Absolutely > Why would they not put it in a safer, positive returning, investment like US bonds? At a minimum you are exposed to the exchange rate with your domestic currency, and FX can be volatile - developed market currencies can easily move a few percent in one week - compare that to the Treasury yield of c.2%/year. PLus you are exposed to US macro-environment and interest rates which may be totally unrelated or risk-additive with respect to your investment strategy. Even +ve yielding bonds are losing money in real terms. People buy german bunds and swiss govvies at negative yields as they are a save haven.