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The radical difference between positive and negative rates hasn't dawned on the system yet, namely, the concept of "market". (/) @Halsrethink @DiMartinoBooth @TheBondFreak @tyillc @Trinhnomics
In a positive rates enviroment, Bond investors and equity investors are totally different animals.
The Bond investor has no fundamental need for a "market", while the equity investor can't exist without it.(/)
The Bond investor has no fundamental need for a "market", while the equity investor can't exist without it.(/)
In positive rates, I could subscribe a middle of the road bond portfolio, say 20 bonds with 4% yield and 5 years maturity, board a sailing vessel at Plymouth, and come back after five years in the reasonable expectation of having more money than when I sailed.(/)
4% * 5 = 20%, so I was even cushioned in the event of one or two defaults. Above all, I did not have to do anything.
Fast forward to Negative interest rates, and I cannot afford to do that, but NOT for yield reasons.(/)
Fast forward to Negative interest rates, and I cannot afford to do that, but NOT for yield reasons.(/)
Let's assume the only rational savers reason to buy negative yielding bonds: the PRICE of the bonds must rise enough to provide me with a total return. This fact has a number of consequences (/)
1. I cannot buy something that does not have a "price", so only marketable securities need apply, and liquidity becomes a paramount concern, since my only hope to beat cash is to sell higher;
2. Bonds ARE equities, since as Keynes said, I am in the "beauty contest" business: (/)
2. Bonds ARE equities, since as Keynes said, I am in the "beauty contest" business: (/)
I can buy ONLY if I BELIEVE that at some point PRICES will be higher, and Yields lower, in a continuous "greater fool" game in which the risk bearers, families, would never engage. reputational risk is rising.
