4 ms·

Can you expand on that? What regulations require European banks to hold government bonds? If it's obvious to everyone that Euro bonds are too expensive, why don

Can you expand on that? What regulations require European banks to hold government bonds? If it's obvious to everyone that Euro bonds are too expensive, why don't American hedge funds short them? I was under the impression that Euro-zone bond rates were so low mainly because the market is expecting economic stagnation and a too-hawkish ECB.

hogFeast 5y ago
Why would you short them? That sounds like a terrible trade. I am not sure why they would have to be "American" either. Hawkish??? The ECB? They own 50% of the govt bond market. They have been throwing literally trillions at banks. Because of the Draghi "whatever it takes", they are the most dovish central bank in the world by far, it isn't close. They were doing massive QE worth trillions when growth was 2-3%, permanent QE. Definitely, the ECB is a big reason why rates are low though, because they have removed 50% of the supply of risk-free assets ("risk-free"...some European govts are obviously insolvent so..."risk-free" is a somewhat unclear concept). And no, Europe isn't economically stagnant...it is a difficult to be brief but the main issue with any high-level comment about Europe is that you have a collection of countries that are almost totally economically dissimilar. So everything is just totally imbalanced, and there is no real way to balance things (the ECB is making this worse). So you can't really talk about European growth being stagnant or rates being affected by growth...because they are just totally separate, ECB policy is appropriate for maybe four countries in the EU, and no-one else...so it is difficult to apply any kind of logic to that process. There is no way to be brief. But the EU-level regulations are solvency ii, bank capital rules (some of these rules are national, but there are EU-level rules too), and the saving culture of Europe (i.e. no financial markets, suspicion of capitalism, suspicion of decentralization). A lot of the rules that relate to pension funds are only relevant at the national level (because the structure of pension funds/savings vary by country)...again, it is tricky to generalise because the economies in the EU are generally nothing alike each other.

hogFeast 5y ago

Why would you short them? That sounds like a terrible trade. I am not sure why they would have to be "American" either. Hawkish??? The ECB? They own 50% of the govt bond market. They have been throwing literally trillions at banks. Because of the Draghi "whatever it takes", they are the most dovish central bank in the world by far, it isn't close. They were doing massive QE worth trillions when growth was 2-3%, permanent QE. Definitely, the ECB is a big reason why rates are low though, because they have removed 50% of the supply of risk-free assets ("risk-free"...some European govts are obviously insolvent so..."risk-free" is a somewhat unclear concept). And no, Europe isn't economically stagnant...it is a difficult to be brief but the main issue with any high-level comment about Europe is that you have a collection of countries that are almost totally economically dissimilar. So everything is just totally imbalanced, and there is no real way to balance things (the ECB is making this worse). So you can't really talk about European growth being stagnant or rates being affected by growth...because they are just totally separate, ECB policy is appropriate for maybe four countries in the EU, and no-one else...so it is difficult to apply any kind of logic to that process. There is no way to be brief. But the EU-level regulations are solvency ii, bank capital rules (some of these rules are national, but there are EU-level rules too), and the saving culture of Europe (i.e. no financial markets, suspicion of capitalism, suspicion of decentralization). A lot of the rules that relate to pension funds are only relevant at the national level (because the structure of pension funds/savings vary by country)...again, it is tricky to generalise because the economies in the EU are generally nothing alike each other.