The Swiss Government has been selling 10-year notes at a negative yield of -0.055%. People are willing to pay Switzerland to store their money.<p><a href="http://www.wsj.com/articles/switzerland-first-with-10-year-bond-at-negative-yield-1428489209" rel="nofollow">http://www.wsj.com/articles/switzerland-first-with-10-year-b...</a>
At the risk of sounding fantastically ignorant...<p>If the US decided to reduce its fiscal deficit, wouldn't that take short-term T-bills out of circulation and drive down interest rates further?
When we talk about 250k in bank accounts being insured by the FDIC, what does that mean? If a bank went bankrupt, how fast would it take for me to get my 250k back from the government?
And yet there is no inflation: <a href="http://www.multpl.com/inflation/table" rel="nofollow">http://www.multpl.com/inflation/table</a> (no doubt helped by the low cost of labor and oil).<p>I guess people can't figure out how to make money from these zero-interest loans.<p>As someone with a mortgage, I would really like to see some inflation (well, wage inflation anyway).
This seems... odd. I don't really understand the way auctions work vs the wider market to understand if this is just a fluke in the selling process, but I wonder if someone somewhere is panicing about something and getting into short term debt?
Demographics affects yelds on bonds, interest rates and housing prices.<p>Demographics has had a downward trend on the interest rate
but that is about to change as there will be a shortage of labour.<p>It´s summarized in this article
<a href="http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11882915/Deflation-supercyle-is-over-as-world-runs-out-of-workers.html" rel="nofollow">http://www.telegraph.co.uk/finance/comment/ambroseevans_prit...</a>
Are we going into deflation? If the 3-month treasury bill sold at 0% means investors are expecting to have no inflation or potential deflation in next 3 months.
Ok, someone educate me on this. Isn't a yield of 0% basically "free money"? What's to stop a bank from just "borrowing" trillions or even zillions?
Let me try to reason out what is going on.<p>On the one hand there we see very strong demand for safe assets: Short term treasury bills are safe because a) risk increases w/ time period and b) they are backed by the US gov't which has a great credit rating and a decent economy to keep it solvent. Investors are willing to take moderate losses (-0.02%) on 3-month T-bills on the secondary market. They are literally paying the government for the reassurance that they will get 99.98% of their money back in 3 months.<p>On the other hand, we are seeing very strong demand for risky assets: S&P 500 was at 2,120 in July, and has lost ~120 points since then but is still 400 points above it's pre-recession 2007 high of 1,560. "Some money managers say the global monetary-policy backdrop is supportive of riskier assets, many of which have become attractive after a selloff in the third quarter."<p>It seems like the supply of money is much too high, and there is not enough demand (viable short-term investments) to soak up the supply.<p>Perhaps if our economy was not so short-term greedy and consumption-driven, we would not be so worried about a few years of necessary savings and long-term investment which would lead to non/negative ROI in the short term, but long-term growth if done correctly.<p>The funny thing is that both the US stock market and the US government bond market, while on opposite sides of the risk spectrum, are both powered by the same engine: the US economy -> US corporations -> US employees -> US education/nutrition/social services/infrastructure/defense. If this engine sputters, all investors will be in a world of pain - bond holders less so, unless the entire system collapses and their bonds become worthless.<p>As the article states, investors are basically giving the government short-term loans when they purchase these T-bills. They have faith that the government will be able to earn some return on them (usually below corporate returns, and hence lower than stock-market interest rates), but that the government has some plan to generate returns nonetheless. So the government should be taking these loans and pumping them into the economy in the way that free market capitalism can't - long-term investments in the basic infrastructure of society.<p>Instead the government continues to keep the liquidity taps open through QE as central banks around the world forge onward with massive asset purchases, putting more money into the corporate market while rotting government balance sheets.<p>Summary: It's like the public and private sector are playing hot potato with an increasing number of hot potatoes. The private market does not want to forego short-term profits and is expecting the government to make the proper investments to spur growth. The government has its hands tied with social security, medicare, and defense spending as well as the debt ceiling, and is pumping money out to the banks with the hope that they will fund long-term investment. They keep going back and forth, swapping more and more money, but the only thing that happens is the distortion of free market prices and signals.
Man, if we could ever get over this allergy into investing in broadband infrastructure, we might create enough investment demand to get interest rates heading up.