Can someone explain this to me?

These bonds were originally issued with positive rates and the rates don't change just the yield does.
Made up Example; 20 year bond issued in 2010 for 1,000 with 5% return. Investor gets a $50 every year for 20 years then gets his 1,000 back. If demand is high for these bonds the price rises and say someone today pays 2,000 for the bond. They still get 50 every year and in 2030 get the 1,000 back. Thus this person loses money paid 2,000 and received 1,000 face plus 750 in dividend for a loss of 250.

It is tulip mania all over.

I would guess the government is buying these "losing" bonds in order to force investors to move towards the new long term issued bonds allowing the government to increase capital.
 
A combination of regulations imposed onto fund managers combined with the fear of a global deflationary collapse
 
There is still a hedge on currency. You can buy a negative bond that the currency increases in spending power and negates the negative yield.
 
theFNG said:
There is still a hedge on currency. You can buy a negative bond that the currency increases in spending power and negates the negative yield.
Click to expand...

I never would have seen that angle. That is freaking brilliant.
 
Caneorange said:
theFNG said:
There is still a hedge on currency. You can buy a negative bond that the currency increases in spending power and negates the negative yield.
Click to expand...

I never would have seen that angle. That is freaking brilliant.
Click to expand...


A person would still do better holding cash. If the currency spending power increases you win with cash. Plus you don't get a guaranteed loss of whatever the negative interest rate is with neg int bonds and bank accounts.

Yes, I know the scared among us will say "maybe you will get your cash stolen from you", and yes that is a true possibility. But I would say when we get to the point that you have to pay to keep your money in the bank or in a bond I say it's worth the risk (of being robbed, etc). A person could always stash cash in a private vault/secure storage if they are afraid of robbers, so the whole robbery fear dissipates- contrary to what at least one popular online pundit claims, it is not illegal in the US to keep cash in a SDB, even though some banks prohibit that in the contract you sign to open the SDB. I can't speak for other countries' laws on storing cash in a private vault or SDB, could possibly be illegal in other places than US.

PS Even better than neg bonds are PM's.

Just my opinion.

Jim
 
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