Central Bank Sponsored Madness: Inversions on Negative-Yield Bonds

Mish

German bonds are inverted in 19 places despite the fact that the German bonds have a negative yield for 13 years.

This Tweet by Holger Zschaepitz, author of 'Schulden ohne Sühne?' a book on states' addictiveness to debt caught my eye.

Zschaepitz's Tweet inspired my lead chart.

The chart shows Germany's negative-yield bond market is inverted in 19 places.

The longer you borrow, the more money you collect because the ECB pays you to borrow.

On the 3-year bond, the ECB pays you 0.667% per year to borrow. If you borrow money for 3 months you collect an annualized 0.514% for borrowing.

Central Bank Sponsored Madness

Getting paid to borrow money, could not possibly happen in a free market.

Yet, it's now so extreme, the longer the borrow, the more you get paid.

This perversion is best viewed as central bank sponsored madness.

Mike "Mish" Shedlock

Comments (22)
No. 1-11
caradoc-again
caradoc-again

Excuse my ignorance but who lends on this basis and to whom? Is it typically just corporate borrowers?

truthseeker
truthseeker

Since most of my income comes from interest income and oil, natural gas sales, this whole mess, the trade war, weaker economic growth is painful, yet crazy as he is, I still would rather have Trump than Hillary!

Casual_Observer
Casual_Observer

Companies are using cheap money to buyback stock. I guess the price could go to infinity if they take enough shares out of the float.

Casual_Observer
Casual_Observer

I just started working for a startup that needs more money. I'm going to suggest alternative means of getting more money. Venture capital is so 1990s.

Mish
Mish

Editor

"who lends on this basis and to whom? Is it typically just corporate borrowers?"

This is a central bank perversion. Negative interest rates are illogical and cannot happen without direct manipulation.

It is difficult for the average Joe to take risk-free advantage because deposit rates are even more negative.

One could borrow money and keep it in the house, but the risk is theft. One could speculate, but that isn't risk-free.

Yes, it is crazy. No, it did not spur lending as the ECB wanted.

Mish
Mish

Editor

There is a maximum negative point. It is when insurance for storing cash costs less than the gain from borrowing. At points much higher, people will borrow money and sit on it. Some banks had already considered it. The big drawback is the huge pile of hundred-euro notes. If the ECB made million-euro notes, some banks would take the storage risk. I recall this being openly discussed.

Augustthegreat
Augustthegreat

Trumptards have been claiming that China is manipulating its currency. From these negative yield bonds, we know who are actual manipulators. Fyi there is no negative yield bonds in China.

Bam_Man
Bam_Man

But credit card interest rates are at all-time highs. No free money for you!

Greggg
Greggg

Meanwhile, student loans for worthless degrees in the trillions of dollars. Yes, we know all about "value" for the oligarchs.

bradw2k
bradw2k

CB's be saying: "Take my money ... please!"

Mish
Mish

Editor

"... this whole mess, the trade war, weaker economic growth is painful, yet crazy as he is, I still would rather have Trump than Hillary!"

Still my position as well


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