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Germany Is About To Sell Zero-Coupon 10 Year Bonds For The First Time Ever
Posted on 7/13/16 at 7:58 am
Posted on 7/13/16 at 7:58 am
quote:
When the financial media says that governments get paid to issue negative yielding debt, that is not exactly true: most sovereign issuers still pay out a cash coupon, a modest as it may be, while they pocket the negative amortization on a bond issued above par for the life of the bond resulting what ultimately ends up being a negative yield for the buyer net of all cashflows at maturity. However, the lower - or more negative - yields get, the less the need for an issuer to actually pay a cash coupon: after all with a negative yield, it is essentially superfluous.
Still, while no sovereign has issued bond with negative cash coupons yet, some are starting to issue zero-coupon ten years: bonds which pay no cash coupons at all.
This is precisely what Germany is about to do in a few hours.
quote:
Then again, with a rather vicious snapback higher in yields over the past two days now that Japanese helicopter money looks increasingly probable, Germany may not be able to continue this experiment for much longer, and may have to revert back to its 0.5% coupon issued until now.
Of course, once this latest modest spike in yields subsides and the world reverts back to its deflationary trendline (a move which will eventually prompt every other central bank, not just Japan - to proceed with helicopter money), and German yields are deeply negative, Germany can then proceed to, if only in theory, issue "negative" coupons, demanding that bond buyers pay Germany. Of course, while in practice this is impossible, it would present the world with such an interesting thought experiment as the "inverse" bankruptcy: a state in which the creditor to the debtor "defaults" because it is unable to make a payment on a bond they lent to the same debtor.
Yes, the new normal sure is interesting. If only in theory.
LINK
Posted on 7/13/16 at 9:09 am to RebelExpress38
Whats the point to buying these vs just having cash in the bank? Is it the perceived safety of giving the government your money vs a bank that could go under?
Posted on 7/13/16 at 9:14 am to dabigfella
Someone else might have better info, but I think it forces banks to lend more money. If they can't make easy cash off the gov, then they have to lend money to survive.
Posted on 7/13/16 at 9:21 am to AUCE05
Ok fair enough, but I imagine if one had $10M in cash, you would think that a bank could go insolvent but the government you'd hope wouldn't
Either way no need to invest in germany come on over to the US our government bonds are awesome 1.43% babyyyyyy
Either way no need to invest in germany come on over to the US our government bonds are awesome 1.43% babyyyyyy
Posted on 7/13/16 at 9:24 am to RebelExpress38
Is the impact, in theory, going to be similar to what Japan did a couple of months ago?
Posted on 7/13/16 at 11:50 am to dabigfella
quote:
Whats the point to buying these vs just having cash in the bank? Is it the perceived safety of giving the government your money vs a bank that could go under?
I think it's basically has more to do with large corporations who have so much cash they get charged to keep their money at banks.
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