Negative interest rates?

Discussion in 'Markets & Economies' started by stackmans, Mar 19, 2020.

  1. mmm....shiney!

    mmm....shiney! Administrator Staff Member

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    Nah it’s just that you say stupid things. So I was laughing.
     
  2. bubblebobble2

    bubblebobble2 Well-Known Member Silver Stacker

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    ^^^^
    come’on guys...can’t you just kiss ‘n make up!?
     
  3. BuggedOut

    BuggedOut Well-Known Member Silver Stacker

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    No.

    Shiney likes the verbal joust too much and the other guy doesn't seem smart enough to know any better.

    Just consider it noise. Thread pollution. Put them both on ignore if their tedium bothers you.
     
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  4. mmm....shiney!

    mmm....shiney! Administrator Staff Member

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    Hmmm, I thought I read somewhere that analysts were predicting that the RBNZ would get to sub-zero rates at some time. Didn't even get a rate cut.

    snip

    snip


    https://invezz.com/news/2020/11/11/nzd-usd-spikes-to-0-6900-after-the-rbnz-interest-rate-decision/


    The RBNZ is downbeat about the future, expecting downside risk to pose a greater threat than the potential for any welcome upside risk.

    This video, at 12:08 they discuss negative rates. First a bit of theory ie it's supposed to be a disincentive against banks from holding cash settlement balances (the RBA has now set a 0% rate for Exchange Settlement balances, previously they'd lifted it to 0.1%), then what it's supposed to do ie reduce the rates for borrowers as banks used the cash settlement balances more aggressively and in the process benefit borrowers.

    The RBNZ Chief Economist made it clear that depositors and mortgage holders won't face negative rates, at 14:07:

     
  5. Number 47

    Number 47 Well-Known Member

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  6. Ipv6Ready

    Ipv6Ready Well-Known Member Silver Stacker

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    mmm....shiney! likes this.
  7. Number 47

    Number 47 Well-Known Member

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    I thought if the government sells it's debt at a negative rate then it counts?
     
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  8. mmm....shiney!

    mmm....shiney! Administrator Staff Member

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    ^ some analysts suggesting it's an FX play.
     
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  9. Ipv6Ready

    Ipv6Ready Well-Known Member Silver Stacker

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    When gov/reserve sells....

    With Bonds, the Reserve sets the rate ie 1.5 billion 5 years @ .5% pa (paid monthly, quarterly, annually or maturity)-> rate is set by "government"

    With Treasury notes, the Reserve states I need 1.5 billion for 6 months, what do you want in interest and it's basically a blind dutch auction, than the lowest bidders gets to lend the money to reserve. The interest is "paid" at redemption.

    This time around one institution offered to pay the government (-0.1%) to lend them about 500 million, for the remaining billion the government ended up paying two lenders and overall interest rate was positive.

    End of the day it could have been an expensive typo lol. We can't really blame the government for negative rates if someone wants to pay them to lend them money
     
    Last edited: Dec 11, 2020
  10. leo25

    leo25 Well-Known Member Silver Stacker

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    Last edited: Dec 11, 2020
  11. leo25

    leo25 Well-Known Member Silver Stacker

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    Normally when people talk about negative rates they reference the central bank target rate (banking overnight lending rate).

    But ill also be interested if OZ government bonds coupon rate go negative too.
     
  12. leo25

    leo25 Well-Known Member Silver Stacker

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    https://www.afr.com/policy/economy/...borrow-as-rates-turn-negative-20201210-p56mc8
     
  13. mmm....shiney!

    mmm....shiney! Administrator Staff Member

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    I don't think there's much history to them. I read an article saying that there had been a break of about 6 years in sales and that they only resumed in March this year or something like that.

    Recent results: https://us20.campaign-archive.com/home/?u=06699a32ac8c4fcee7a2ad147&id=757140b03a
     
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  14. leo25

    leo25 Well-Known Member Silver Stacker

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    Would this be due to legal requirements where institutions need to hold government debt over cash? Some of these trades really mess with my head. :confused:
     
  15. JohnnyBravo300

    JohnnyBravo300 Well-Known Member

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    It's supposed to be confusing, same as insurance and taxes. They are set up that way on purpose.
    Theres always some fine print somewhere that you wont see!
     
  16. mmm....shiney!

    mmm....shiney! Administrator Staff Member

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    Banking on a strengthening AUD from what I've read.
     
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  17. leo25

    leo25 Well-Known Member Silver Stacker

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    What i mean is why not just put keep the $1 million in deposit account for 3 month? Why take a small loss to have it as a T-Bill?

    I can't get my head around the FX market. Granted i haven't spent much time studying it, i should ad it to my to do list.
    Assuming it was related to a FX trade and not a fat finger.
     
    Last edited: Dec 11, 2020
  18. Ipv6Ready

    Ipv6Ready Well-Known Member Silver Stacker

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    For what ever reason, the lender must have had a banking/lending/trust covenant where they must hold X amount of Australian government issued debt.

    It is very unlikely the covenant called for $1 million but rather a higher amount like (made up) 250 million but they realised they only had $249m and topped up. The rate these notes were priced 0.0099 per cent, it is fine margin in blind dutch auction, so if they were potentially facing a bigger fine/default/penalty for not holding the full X amount 0.01% is small price to pay to guarantee compliance.
     
    Last edited: Dec 11, 2020
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  19. leo25

    leo25 Well-Known Member Silver Stacker

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    ok, so it most likely has to do with arbitrary compliance/ legal requirements.
     
  20. Ipv6Ready

    Ipv6Ready Well-Known Member Silver Stacker

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    I am just saying it is potentially the most plausible theory, as to why an insititution will be offering to pay to lend money for particular asset.

    End of the day it could have been somone who won the powerball last week and thought having thousand $1000 treasury notes was cool to wallpaper his bedroom.... not realising that there are no paper notes (in Australia) but just an account :) ...
     
    Last edited: Dec 11, 2020
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