Western World Debt - How much more can it be expanded before it needs a large correction

Itchy

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585
To answer your question, the ecb is the only entity buying negative yielding bonds in the eurozone,

Fake news!

Would you buy government debt at a negative yield if you were in the private sector, just asking?

You misunderstand the concept of a negative yield. A negative yield doe NOT mean a guaranteed loss or nor does it mean negative income. For example, they are used to hedge FX positions. You are also focusing on yield rather than security (i.e. credit risk) - and thats what your plc board will fire you for!
 

BilliamD75

Registered User
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71
Physical cash??? You think a properly run plc should keep physical cash? Because bank deposits are paying negative interest.


No you haven't. You made up an answer.
Ryanair said recently that they have 4 billion cash reserves available I will ask where they keep it for you, if the ecb are not buying provide the aam readers who are,
 

BilliamD75

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71
Fake news!



You misunderstand the concept of a negative yield. A negative yield doe NOT mean a guaranteed loss or nor does it mean negative income. For example, they are used to hedge FX positions. You are also focusing on yield rather than security (i.e. credit risk) - and thats what your plc board will fire you for!
A negative yield is a guaranteed loss, the underlying value of the bond allowing for inflation may rise or fall and so does the income you cannot have it both ways, the ecb position on the bonds is loss making and if it continues it will need a bailout as the underlying value of the bond is at risk.
Fake news hmm then you provide a link to who is buying the negative bonds, I said in a post last year that we were heading into an economic storm which we are in and that the ecb was at the wheel which it is, I clearly know what I am talking about, I will stick to my source and continue to do well while others are buying guaranteed loss making bonds, I tried to be objective to understand other peoples opinions and give advice but wow this is not a place for me,
 

Itchy

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585
A negative yield is a guaranteed loss, the underlying value of the bond allowing for inflation may rise or fall and so does the income you cannot have it both ways, the ecb position on the bonds is loss making and if it continues it will need a bailout as the underlying value of the bond is at risk.
Fake news hmm then you provide a link to who is buying the negative bonds, I said in a post last year that we were heading into an economic storm which we are in and that the ecb was at the wheel which it is, I clearly know what I am talking about, I will stick to my source and continue to do well while others are buying guaranteed loss making bonds, I tried to be objective to understand other peoples opinions and give advice but wow this is not a place for me,

On the 19th of March the NTMA sold €0.5 billion @ -0.39%. They report that they received €1.245 billion of bids for those bonds 2.5x the nominal. Can you explain why the ECB as the ONLY purchaser of negative debt would make bids that cover the issue 2.5 times over?

 

RedOnion

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6,208
Can you explain why the ECB as the ONLY purchaser of negative debt would make bids that cover the issue 2.5 times over?
Of course he can't explain.

This is a poster who previously stated that private sector should be putting their cash on deposit with the FED to avoid negative Interest rates.

There's no such thing as currency risk...
 

EmmDee

Registered User
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736
Ryanair (or any company) reporting "cash reserves" are not keeping these in bank accounts. Any corporate lodging anything other than operationally required cash flow will be charged 0.5% minimum. Cash reserves include cash equivalents - short term paper, money market funds etc.

ECB may hold €2.5tn of assets. EUR money market funds alone hold €1.5tn EUR bonds and short term paper. Add in pension and other funds, insurance reserves, corporates with large balances. While ECB may be a large holder, they are nowhere near being the only bidder

While a company might look for 15% IRR on internal investments such as a decision on systems, facilities etc (not an unusual number), this is not the same as what a corporate would expect as a return from a market investment. A return that high would imply significant risk which if not the core competence of the firm would be unusual. A corporate treasurer is usually benchmarking against the risk free rate of return - which in EUR at the moment is about -0.5%
 

ant dee

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279
On the 19th of March the NTMA sold €0.5 billion @ -0.39%. They report that they received €1.245 billion of bids for those bonds 2.5x the nominal. Can you explain why the ECB as the ONLY purchaser of negative debt would make bids that cover the issue 2.5 times over?


This is interesting.
Can someone explain the logic of this please?
 

Itchy

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585
It’s illogical. The point was, it was a farcical claim to make that the ECB was the only purchaser of negative yielding debt.
 

joe sod

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1,514
It’s illogical. The point was, it was a farcical claim to make that the ECB was the only purchaser of negative yielding debt.

but as been pointed out before there are alot of forced buyers like the banks and insurance companies, they have been forced by the regulators to keep a proportion of their capital in "safe assets" like government bonds even at negative yields. Therefore rather than lending to the private sector where they could charge more interest they have to lend to the governments. Thats one of the big reasons why the banks share price is in the toilet and this was before the corona virus thing.
There is a whole study of this phenomenon its called "financial repression" whereby governments and central banks the world over are holding interest rates down and printing money. This is because governments are the large creditors so they are inflating away this debt and are effectively stealing from savers.
 
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RedOnion

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6,208
but as been pointed out before
As pointed out before the quoted posted was making stuff up. They were wrong. Plain and simple.

Therefore rather than lending to the private sector where they could charge more interest
There's lots of negative yielding corporate debt around.

are effectively stealing from savers
Peter Brown quote?
Any form of inflation where it's greater than the nominal interest rate is "stealing from savers". There's a gibberish logic behind it that appeals to the masses.
 

joe sod

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1,514
Peter Brown quote?
Any form of inflation where it's greater than the nominal interest rate is "stealing from savers". There's a gibberish logic behind it that appeals to the masses.

looks like a stumbled into a hive of bees protecting their honey. It doesn't appeal to "the masses", the masses are not interested in this topic as most are beneficiaries of government spending, in fact at the moment it is probably a good thing as that is where governments are getting the money to pay the Covid payments. But "negative interest rates" are not a natural market phenomenon because inevitably extremely low interest rates should be follwed by higher and rising interest rates not by negative interest rates but this is being "repressed" by the central banks and governments
 

Sarenco

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7,016
"negative interest rates" are not a natural market phenomenon
I don't know what you mean by "a natural market phenomenon" but we have certainly had negative interest rates in Europe during periods where no QE was taking place.
 

joe sod

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1,514
Pascal Donohue made a reference to "bond market vigilantes" last week potentially driving up interest rates on government debt in the future and making it much more difficult for irish governments to raise new debt or roll over existing debt in the future. Its a term I had never heard of before but obviously the government and the treasury are worried about it with all the borrowing they are doing currently to pay for the corona virus shock. I think they sense a big problem coming down the road.
 

DeInfoSeeker

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3
I believe it's an inevitability that a synchronised default is on the horizon, although I cant see western central bankers allowing a currency crises to unfold.

The synchronisation of a managed default could only be brought about at a time of war or crises such as Covid 19.

Who loses in all this will be determined by the central banks. Many people believe that the 2008 debt crises was never resolved and we're still dealing with the aftermath.

Printing money to infinity on this scale will go down in history.

I claim no expertise at all but to me, a synchronised managed default seems to present the most likely way out of the impasse where two issues co-exist:
1) What can't go on won't go on.
2) An unmanaged default by major players in the first world would be unthinkable.

The way I describe it is that 2008 was a relatively benign tremor worsened by state intervention meaning that moral hazard was allowed go unpunished. This Covid thing is a bigger shock to the system and may develop further but the real earthquake is coming at some impossible to determine time. Debt plus the vast trillions upon tens of trillions in collective unfunded liabilities - every lgarda walking around the streets has been promised over a million in unfunded pensions by this state for example - means it simply must result in some more or less managed depositioning.
 
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