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Bloomberg announces that Japan is preparing to join Germany in a performance curve club while negative.
The Asian nation's returns are already negative until the end of the debt in 15 years, and domestic and foreign buyers are seizing longer-term Japanese government bonds, thus accentuating the downward pressure.
International investors take advantage of dollar loans for the yen via forward foreign exchange contracts and cashing the proceeds in JGBs, while domestic players take advantage of the slope of the yield curve by borrowing over a short period of time and placing money at longer maturities when yields are higher.
"Investors are looking to buy 30- and 40-year bonds while they still have positive returns," said Tadashi Matsukawa, head of fixed income at PineBridge Investments Japan Co. "They risk losing returns on all their deadlines. territory."
No brain
A flawless stay
To the infinite and beyond
Why stop at age 30 or even at age 40?
Why not offer perpetual bonds with a negative return?
Fundamentally impossible negative returns
Negative returns are fundamentally impossible in the absence of manipulation by the central bank or monetary fraud.
This is not an opinion, it is a statement of fact. It is impossible for someone to prefer 89 cents in ten years to a dollar today.
Yet, I see people I respect to explain the problem.
Deflation to come
A flawless stay
I agree that deflation is coming, but I'm sorry, this is not a valid excuse to buy a negative return debt.
Monetary component
One of my readers commented "You forget the monetary component."
This statement is apparently a "carry trade" sympathy with Bloomberg's "No Brainer."
Excuse me for pointing out that there is no risk free arbitrage.
Carry's trades are exploding all the time and the next one will be a doozie. I'm expecting a lot of hedge funds to explode on this type of betting.
Logically impossible
Do not equate speculative activity with fundamental impossibility of someone who actually prefers 89 cents in ten years to a dollar today.
This is exactly what Swiss bond yields imply.
Still, Rosenberg did the same rationalization as my reader.
The guard
Again, note the difference between child care and negative interest rates.
One might expect to pay a small nominal storage cost for gold (or silver).
But if you lent gold (or money), instead of placing it in a bank to keep it, the return never be negative or no. Never.
That one can choose to speculate on negative return bets via carry trades or that the greatest fool's theory does not cancel this simple fact: Temporal preference can never be negative, except in cases of central bank manipulation and outright monetary fraud.
Understand the point
A flawless stay
Fraud issue
Another reader commented "I do not understand why the negative interest rates are fraudulent.The bond issuer promises to pay less dollars at maturity than the buyer spends on the purchase of the obligation, there is no fraud. "
Of course, there is manipulation and fraud.
Again, interest rates could never to be negative without manipulation of the central bank.
The ECB has embarked on a massive QE, printing money from scratch, forcing banks to take money, and setting negative rates depriving banks of their profits. It's a huge fundamental mistake and it's already turned against us.
If you do not like the word fraud, call it theft. It's not very different from the bully who claims money on the playground in exchange for the right to walk unhindered to the class.
Banks must accept the offer. In return, we now see things like banks billing deposits to consumers. Negative interest rates on deposits rob depositors because they are taxed on them.
If something that can not logically happen actually happens, look for the obvious explanation of the manipulation and fraud.
What is happening?
- To create "excess reserves", through the purchase of assets, banks are flooded with dollars (euros or yen), because they fear not being able to lend them profitably.
- In the case of the ECB, the central bank charges banks interest on euros piled up in the throat.
Mathematical certainty
In Europe, the United States, Japan and elsewhere in the world, there is a 100% mathematical certainty that a person must hold every dollar, every euro, every stock and every bond 100% of the time..
Please read it two or three times until it sinks.
Someone & # 39; a must hold each security and every dollar. You can not sell stocks and buy bonds without someone else doing the opposite.
Since there is a seller for every buyer, only the property is transferred.
Handling, fraud or theft?
In this case, the ECB prints euros that banks do not even want. However, we have to hold the road, 100% of the time, even if the interest rate set by the ECB is high.
Then, the ECB takes interest on printed funds from banks, while setting a negative rate in the short term.
This destroyed the bank of the euro area profitably. In contrast, the Fed paid interest rates on excess reserves, bailing them slowly over time.
Give meaning to everything
These central banking strategies can be described as manipulation, theft or fraud.
Select the term that suits you best.
But that's the way to make sense of the 100-year bonds yielding 0% and 30 year bonds with a negative return.
In addition, please take into account Fed Baby Coming measures: what is Powell for?
My short answer is that the Fed wants to avoid the negative rate trap of the euro zone.
Mike "Mish" Shedlock
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