And now .... Spanish 2 years negative

This is f**** up.

4-5 years ago the term PIGS was coined.

Now people are paying them to buy their debt.

This keeps on feeling very weird, and in this case, very wrong.

Thanks free money Fed & ECB!

Maybe I didn’t pay enough attention in CFA land, but why would you ever pay/accept a negative yield on a bond? Wouldn’t stuffing it under your mattress, or leaving it in a bank account (assuming a non-negative rate on deposits) be a better option?

I really wish I knew when this party would end and how. Whether it be by the perpetually broke Greece finally getting shoved out on its own, or some other macro calamity.

In addition, German 10Y yields skyrocketed from the lows at 0,05% to nearly 0,25%, but why??

I hear your point. But for institutions that have a large amount of cash, I guess that it isn’t a viable option to stack hundreds of millions of cash in a bank’s vault. In Germany we are reading more and more in the papers that banks are now charging negative rates for deposits. However, all companies that I am talking to claim to get in the range of say, 10-50 bips on deposits from their banks.

Yeah this is pretty weird. I think that the 0.05 level was some temporary defensive move in the light of the uncertainty with Greece. But people have relaxed and sold some bunds.

I certainly wouldn’t expect the 0.20-ish level to sustain and I think we’ll cross the 0.10 level again shortly.

i believe the interest gets floored at 0

I personally know of one very large custodian that is charging 20bps on overnight Euro deposits at the moment. So negative banks rates are very real.

In Switzerland I think overnight rates are more like -0.75% currently and institutions have started to hoard bank notes in vaults.

I think in decades to come people will look back on this time and scratch their heads as to how this situation ever came about. It feels very bizarre.

Maybe it´s just a leveraged bet against German Bunds, like Gross and Gundlach suggested…

Subsidized lending has always worked out so well in the past.

yes, beer!!

Very volatile day in Euro markets. Big move out in bond yields.

A lot of times these negative rates are on customers who have no choice, either constrained by regulatory rules or liquidity constraints on having to hold the cash somewhere.

yes, trade flows plus increased lending in Germany plus positive inflation expectations. I think yields will decline again though as qe buying continues.

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Could it just be the greater fool theory? Or just the government buying? No sellers? Convexity makes being on the wrong side expensive.