r00lish67
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Post by r00lish67 on Aug 13, 2019 10:04:06 GMT
Lots of press recently about global market cash yields starting to actually turn negative (e.g. economist article with fiddly but sometimes surmountable paywall). So, I'm now wondering whether the 2.00% p.a. 1 year fixed rate bonds that I have are actually startlingly good value in the present environment, without really feeling like it. Thoughts? |
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registerme
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Post by registerme on Aug 13, 2019 10:40:09 GMT
The most interesting article I read in last week's Economist was the one that suggested that there might be more inflation out there than we recognise. Central banks etc are good at picking up on price data, but not quality (or, indeed, quantity) data. The two examples provided were Toblerones getting smaller, and people getting less mileage out of their toilet rolls.
If that's correct I wonder will we see interest rate corrections, upwards, when they figure out how to correct for it?
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aj
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Post by aj on Aug 13, 2019 13:24:54 GMT
I am no financial genius but I just don't understand negative yields. If a Bond will pay back less that it costs, why would anyone buy it? Surely straight cash is a better and just as safe option?
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IFISAcava
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Post by IFISAcava on Aug 13, 2019 13:25:56 GMT
I am no financial genius but I just don't understand negative yields. If a Bond will pay back less that it costs, why would anyone buy it? Surely straight cash is a better and just as safe option? tell that to people holding Sterling
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aj
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Post by aj on Aug 13, 2019 14:02:30 GMT
I am no financial genius but I just don't understand negative yields. If a Bond will pay back less that it costs, why would anyone buy it? Surely straight cash is a better and just as safe option? tell that to people holding Sterling Anyone who bought sterling denominated bonds with a negative yield would still be worse off than those holding sterling as cash?
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IFISAcava
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Post by IFISAcava on Aug 13, 2019 14:27:42 GMT
tell that to people holding Sterling Anyone who bought sterling denominated bonds with a negative yield would still be worse off than those holding sterling as cash? True, but I don't think yields are negative in Sterling denominated bonds. Presumably people buy the negative yielding bonds to hold a different currency with security. Agree they could put it in a cash account instead, although there is a risk of a bank going bust. Or perhaps they are banking on bond prices rising?
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Godanubis
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Anubis is known as the god of death and is the oldest and most popular of ancient Egyptian deities.
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Post by Godanubis on Aug 13, 2019 14:38:43 GMT
With negative returns for banks not lending gold looks like a good bet for them with the impending bond market crash.
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r00lish67
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Post by r00lish67 on Aug 13, 2019 15:34:33 GMT
I am no financial genius but I just don't understand negative yields. If a Bond will pay back less that it costs, why would anyone buy it? Surely straight cash is a better and just as safe option? My understanding is that in reality it probably wouldn't be applied to retail investors. However, institutions with hundreds of millions of Euros cannot easily just withdraw cash and stuff it under the bed, so may actually have to accept negative rates to keep their cash safe esp. in German bonds. What we meagre retail investors have seen though is ongoing cuts to any form of bonus interest rates (remember the glory days of Santander 1,2,3 allowing £20k at 3% p.a? Sigh). If the trend continues, we could see small account fees for holding a current account perhaps. Although the competition is such that I struggle to see that happening at the moment.
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littleoldlady
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Running down all platforms due to age
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Post by littleoldlady on Aug 13, 2019 15:37:59 GMT
I am no financial genius but I just don't understand negative yields. If a Bond will pay back less that it costs, why would anyone buy it? Surely straight cash is a better and just as safe option? My understanding is that in reality it probably wouldn't be applied to retail investors. However, institutions with hundreds of millions of Euros cannot easily just withdraw cash and stuff it under the bed, so may actually have to accept negative rates to keep their cash safe esp. in German bonds. What we meagre retail investors have seen though is ongoing cuts to any form of bonus interest rates (remember the glory days of Santander 1,2,3 allowing £20k at 3% p.a? Sigh). If the trend continues, we could see small account fees for holding a current account perhaps. Although the competition is such that I struggle to see that happening at the moment. Or is it just banks who are forced to hold reserves with the central bank (at negative interest)?
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cb25
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Post by cb25 on Aug 13, 2019 16:45:24 GMT
Some reasons given here - M&G bond vigilantes article from 2016 but I guess the reasons may still be valid |
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Post by propman on Aug 19, 2019 15:40:26 GMT
Storing large amounts of physical cash safely is also not free. There may also be funds caught by their own rules that may dictate a maximum cash holding (presumably set when interest rates were assumed to always be possitive for any but the shortest periods). Therefore they have chosen the negative bonds as the closest available asset to cash.
that said, usually the answer as stated in the article is the "greater fool" theory as improved by QE providing a source of "fools".
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Post by bracknellboy on Aug 19, 2019 16:53:34 GMT
....and people getting less mileage out of their toilet rolls. ...
What are u using your toilet rolls for ?? A case of the runs perhaps ......
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adrianc
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Post by adrianc on Aug 19, 2019 17:33:41 GMT
....and people getting less mileage out of their toilet rolls. ...
What are u using your toilet rolls for ?? A case of the runs perhaps ......
On a minor diversion, I can heartily recommend the bunny-hugging bogroll from uk.whogivesacrap.org/ - and if anybody wants a referral...
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Post by Deleted on Aug 19, 2019 18:47:16 GMT
If capital is free then interest rates are zero. Inflation noise then swamps simple interest figures.
The debate should be, is it a zero capital income world or will we keep printing money forever?
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Post by propman on Aug 21, 2019 16:32:12 GMT
If capital is free then interest rates are zero. Inflation noise then swamps simple interest figures. The debate should be, is it a zero capital income world or will we keep printing money forever? So much for Piketty's contention that the return to capital is too high!
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