Lower interest rates, 50 yr treasuries, negative yield, BOOM...

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44. Negative yields are Happening all around the world...to the tune of 17 Trillion

Last edited Sat Sep 14, 2019, 07:26 PM - Edit history (1)

Imagine if I came to you with a deal.

Give me $10 today and I’ll return $9 to you in a decade or so.

No way right?

This is happening all around the world and on increasing basis.

Maybe you didn’t go to Harvard Business School, but perhaps you recall an early lesson from your Junior Achievement class that tells you this is not how it’s supposed to work.

You are supposed to put your money in the bank and be rewarded with interest. This is supposed to be wiser than trading your precious allowance at the candy store for an awesome, yet fleeting sugar rush.

Nicholas Colas, co-founder of DataTrek, put it plainly enough: “Bonds are supposed to pay the owner of capital something to pry the money out of their hands.”

Nevertheless, some really smart investors around the world now have invested about $17 trillion in government bonds that offer negative interest rates, according to Deutsche Bank. That represents about a quarter of the global bond market.

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Investors are willing to pay a premium—and ultimately take a loss—because they need the reliability and liquidity that government and high-quality corporate bonds provide. Large investors such as pension funds, insurers, and financial institutions may have few other safe places to store their wealth.

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Description, A liquidity trap is a situation, described in Keynesian economics, in which, "after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rather than holding a debt which yields so low a rate of interest." Wikipedia

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So when governments or corporations cannot sell there bonds...to pay there debts...and they are politically unwilling to raise taxes...or they give away a trillion here and there...what’s next...?

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It’s called QE...in Europe almost 3 trillion euros, and in the USA, If you thought the Federal Reserve was done with quantitative easing, you might only be half right. As soon as next year, analysts say the Fed will resume large-scale buying of debt securities -- this time just U.S. Treasuries -- in amounts that may ultimately exceed its crisis-era purchases. According to an estimate by Wells Fargo & Co., the central bank’s balance sheet will rise past its historic peak as it adds over $2 trillion to its Treasury debt holdings in the next decade.

https://www.bloomberg.com/news/articles/2019-05-21/qe-may-be-over-but-the-fed-s-u-s-debt-hoard-is-set-to-double

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Next.....? In my opinion, it could be the yuan or a combination of dollar, yuan, euro, and yen...or...?

The next president will have there hands full, similar to what Obama went thru but with more deflation....starting in 21, 22