Negative Yield Curves to Infinity and a Reader Question Regarding Fraud


The entire German yield curve is negative for 30 years. Japan is poised to join the club.

Bloomberg reports Japan Lines Up to Join Germany in All-Negative Yield Curve Club.

Yields in the Asian nation are already negative all the way out to debt maturing in 15 years, and buyers from home and abroad have been snapping up longer-tenor Japanese government bonds, adding to the downward pressure.

International investors are profiting by lending dollars for yen via currency forward contracts and plugging the proceeds into JGBs, while domestic players benefit from the slope of the yield curve by borrowing over a short time frame and putting the money into longer maturities where yields are higher.

“Investors are seeking to buy 30- and 40-year bonds while there are positive yields left,” said Tadashi Matsukawa, head of fixed-income at PineBridge Investments Japan Co. “They face the possibility that yields across all maturities will fall into negative territory.”

No Brainer

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To Infinity and Beyond

Why stop at 30 years or even 40 years?

Why not offer perpetual bonds with a negative yield?

Negative Yields Fundamentally Impossible

Negative yields are fundamentally impossible in the absence of central bank manipulation or monetary fraud.

That is not an opinion, it is a statement of fact. It is impossible for someone to prefer 89 cents ten years from now to a dollar today.

Yet, I see some people whom I respect attempt to explain the matter.

Deflation Ahead

I agree that deflation is ahead, but I am sorry, that's not a valid excuse to buy negative-yield debt.

Currency Component

One of my readers commented "You are forgetting the currency component."

That statement is in apparent "carry trade" sympathy with Bloomberg's "No Brainer".

Excuse me for pointing out there is no risk-free arbitrage.

Carry trades blow up all the time and the next one will be a doozie. I expect many hedge funds will blow up on these kinds of bets.

Logically Impossible

Let's not equate speculative activity with the fundamental impossibility of someone actually preferring 89 cents ten years from now to a dollar today.

That is precisely what Swiss bond yields imply.

Yet, Rosenberg made the same rationalization as my reader.


Again, note out the difference between safekeeping services and negative interest rates.

One would expect to pay a small nominal storage cost for gold (or cash).

But if one lent gold (or cash), as opposed to placing it in a bank for safekeeping, the yield would never be negative or zero. Never.

That one might choose to speculate in negative yield bets via carry trades or the greater fool's theory does not negate this simple fact: Time preference can never be negative except by central bank manipulation and outright monetary fraud.

Understanding the Point

Question of Fraud

Another reader commented "I don't understand how negative interest rates are fraudulent. The bond issuer is promising to pay fewer dollars upon maturity than the buyer is spending to purchase the bond. There is no fraud."

Of course there is manipulation and fraud.

Once again, Interest rates could never be negative without central bank manipulation.

The ECB engaged in massive QE, printing money out of thin air, forcing banks to take the money, then setting rates negative robbing banks of earnings. That's a huge fundamental mistake and it has backfired already.

If you do not like the word fraud, call it robbery. It is not much different than the playground bully demanding money in return for the right to walk to class unmolested.

Banks have to take the offer. In return, we are now seeing things like banks charging consumers for deposits. Negative interest rates on deposits rob depositors because they are forced upon them.

If something that cannot logically happen, actually happens, look for manipulation and fraud as the obvious explanation.

What's Happening?

  • To create "excess reserves" central banks, via asset purchases, flood banks with dollars (euros or yen) the banks do not even want because banks believe they cannot lend them profitably.
  • In the case of the ECB, the central bank charges the banks interest on the euros crammed down their throats.

Mathematical Certainty

In Europe, the US, Japan, and everywhere, it is a 100% mathematical certainty that someone has to hold every dollar, every euro, every stock, and every bond 100% of the time.

Please read that two or three times until it sinks in.

Someone must hold every security and every dollar. One cannot sell stocks and buy bonds without someone else doing the opposite.

Given there is a seller for every buyer, only the ownership transfers.

Manipulation, Fraud, or Theft?

In this case, the ECB prints euros the banks do not even want, yet someone has to hold the damn things, 100% of the time come hell or high water, no matter what interest rate the ECB sets.

Then the ECB charges the banks interest on the money printed out of thin air while simultaneously setting the short-term rate negative.

This has destroyed Eurozone bank profitably. In contrast, the Fed paid interest rates on excess reserves, slowly bailing them out over time.

Making Sense of It All

One can label these central bank strategies manipulation, theft, or fraud.

Select the term that suits you best.

But that is the correct way of Making Sense of 100-Yr Bonds yielding 0% and 30-Yr Bonds With Negative Yield.

Also, please consider Fed Baby Steps Coming: What's Powell Up To?

My short answer is the Fed wants to avoid the Eurozone negative rate trap.

Mike "Mish" Shedlock

Comments (20)
No. 1-16

And more and more - it will be the taxpayers.

If fundamentals and market forces were allowed to breath again - most asset prices would collapse.

"Someone must hold every security and every dollar. One cannot sell stocks and buy bonds without someone else doing the opposite."


Of course it is fraud, or better said, counterfeiting. Fractional reserve banking is a juggling act (check kiting) which by alternating pendulum swings of inflation and deflation manipulate the price of capital and the value of collateral, always to the disadvantage of the parties that are not part of the prime mover crowd. If you did with property entrusted to you what banks do with money, you would go to jail. If you do what banks do with money, you get prosecuted. Don't believe me? I know baby-sitting co-ops and other such exchanges which introduced their own chips or tokens, and faced prosecution.

The proof is in the pudding. CEO compensation has sky rocketed since the economy was financialized, turning executives into a type of banker, balance sheet jockeys and price share manipulators. Just look at GE or GM. Average compensation of bankers and executives cannot possibly by explained as productive labor -- they are multiples of the gains realized by criminal syndicates and racketeering schemes. Why do you think all these too big to fail banks have all paid billions to buy off felony money laundering, market rigging, and fraud charges? Because the illegal activities are in fact of exactly the same nature as the legalized activity, they cannot really be distinguished.


I think negative yields are the natural consequence of central governments and central banks cooperating to inject new money into their economies.

Central governments go on a spending binge in an attempt to lift their economies and "engage animal spirits," but since they simultaneously crush innovation and competition with ever more rules and regulations and since improvement in productivity does not necessarily keep up with the growth in cost of government, the spending binge does not have the desired effect. Central banks recognize this and want to push even more money into the economy than the superhighway that is government spending. So what do they do? They overpay for the government debt, shoving every ounce of new credit through the government debt channel they possibly can, pushing yields absurdly low and negative. Despite this, they still can not get asset prices and wages to inflate fast enough to compensate for the money being pumped in. (Hmm...could it be that government spending is largely not productive and MMT is a flawed economic theory? Nah, that couldn't be it.)

Unless they are willing to face a credit collapse (they aren't), the next step is Central Banks will identify wider channels to inject more money. I imagine they are eventually going to buy everything like the BOJ. All this will be done in the name of keeping their economies growing, but I fail to see how it differs in the end from theft through counterfeiting.


Perhaps it is better to say that negative yields can only exist in an environment where central banks have committed fraud to manipulate the financial system. However, the negative yield instrument is not, in and of itself, fraudulent. It is merely a symptom of the underlying fraud.


Obama did not at all crack down on bankster fraud, and look at him now.


On a long enough timeline the value of everything goes to zero.

Tony Bennett
Tony Bennett

Bring back the Ukranian War Maps!

Just kidding.

"That is not an opinion, it is a statement of fact. It is impossible for someone to prefer 89 cents ten years from now to a dollar today."


Sure, why not? If someone thinks best alternative, then yes. Especially, if someone feels other assets (stocks/RE/etc) will fall even further. Oh, just hold cash, you say? Not possible for everyone in a fiat society. The Federal Reserve publishes weekly money aggregates. TOTAL currency "out there" less than $1.7 Trillion ... M1 about double that.

I guess we have to agree to disagree. Let me just say I've been long the long bond for years ... and what is happening I expected all along. and things will get a lot "negativer" before we're thru.


Of course it's all because of CB manipulation. Only a huge investor who doesn't care about making a profit would inflict this.

As far as the currency component is concerned. I guess the idea is you can still make money if the currency the debt is denominated in goes up. Maybe. But why not just exchange for the appreciating currency and hold that instead of buying a bond with it?


After the bank bailouts we wondered what will happen when everything goes to hell again. Here we are.

The man in the street in the US wont stand for negative rates on deposits. I dont know what happens but unrest is guaranteed


@Mish, you asked, Manipulation, Fraud, or Theft? I answer, Yes.

My contention is Central Banks are operating a Ponzi Scam. Is that too simplistic or too outlandish?


Real estate appraisals can also stay high which is a win for the real estate crowd and state and local tax authorities. Imagine buying a house for 500k where the total payments are less than 500k but the county says, no your house is worth is 500k. Negative mortgage rates are between you and your bank.


Trump just angrily tweeted all companies stop doing business with China and find other places to do business. I could easily now see the markets dropping by 25-40% based on this trade war alone. Low interest rates won't save anyone. Chairman Powell said there is no monetary policy playbook for a trade war. Which means there is little the Fed can do anymore.


Mish: "Let's not equate speculative activity with the fundamental impossibility of someone actually preferring 89 cents ten years from now to a dollar today."

Me: I understand what you are saying and agree with it it from a semantic point of view; but what investors are telling us when they pay a dollar now for a yield of 89 cents decades down the road is that in spite of that loss they still deem it to be the safest and most profitable trade they can make right now, or with any reasonable expectation in the future.

where the confusion lay, and why we all are having such a hard time with it is that we are trained to think of buying guaranteed debt instruments is the equal of holding cash. After all cash and debt notes are fungible are they not? So if you take a company like... (I went to Google the largest insurance company in the country so I could accurately quote their asset base but it seems the marketplace has changed while I was not looking, all the companies I found were ranked by premiums written, not by assets backing the company)

Well I remember an ad long ago for Mutual of Omaha, it claimed they had over 300 billion in assets. That asset base has to be invested, and the law limits the types of investment to investment grade, something that was sold to the highest bidders or for that matter anyone willing to bribe the ratings agencies for an investment grade rating. They can now invest in negative yield notes ten years out that will return less than what was put in for a guaranteed loss if held to maturity. Or, they can hold cash. Common sense says hold the cash as it will retain 100% of it's cash value adjusting for inflation. Which is quite a bit more than that treasury note, yet, if all other forms of investing will get you an even bigger loss than that 10 year note you will still be ahead of everything except cash. Part of the real problem is in a financialized economy you can't simply hold your assets in cash. For one thing the powers that be are lying about true inflation and we all know that. You simply cannot run fiscal policy at a deficit of a trillion per year or more without artificially expanding the GDP, and you can't have a balance sheet at the Fed with 4-5 trillion (and very likely another 16 trillion we are not told about because it has been netted against toxic assets at face value that are worth less than their weight in recycled paper) and not have inflation. Yes, they can lie about the CPI and PCE and the core rates of both, but unless you are a trust fund baby that has your bills paid by accounting firms you know prices just keep rising. So no matter your definition of inflation it is here. Inflation depresses demand, so GDP can rise because it is measured in dollars even as actual economic activity declines. Go to the nearest empty mall and see for yourself.

If nobody feels secure about holding cash for the next ten years they will hold the next best thing. That is whatever gives them the best guaranteed return in the same period.


Why would anyone buy negative yielding bonds when you can put the money in an FDIC insured savings account. The worst you could do is end up with the same dollar you put in. When rates rose last year I moved the bond portion of my portfolio into stable value money market funds. I doubt those will go negative this time like in 2008. Now that rates are declining, I'm cleaning up but at some point all money will have to go into a money market FDIC-insured fund like in 2008. Bonds are going to have trouble being priced, especially private bonds in the corporate bond market and the like. No price means bondholders won't get paid back.


"One can label these central bank strategies manipulation, theft, or fraud. Select the term that suits you best."

Well said.They can call it whatever they choose, but the result is essentially the same.


"perpetual zero-coupon bond"...isn't that a dollar bill?

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