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We haven’t seen interest rates this low since before Hammurabi

ZZZZZ

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Opinion: We haven’t seen interest rates this low since before Hammurabi, so what bonds should you buy?

Published: July 18, 2019 8:56 a.m. ET

14

U.S. Treasurys still offer somewhat higher returns — and good protection from a bear market

By
HOWARDGOLD
COLUMNIST

AISA/Everett Collection
The Code of Hammurabi.contains one of the earliest records of interest rates.

A couple of weeks ago Jim Bianco, president of Bianco Research, posted that Swiss two-year bonds, yielding negative 0.91%, were close to their all-time lows below negative 1.0 %, which they hit back in 2015.

He added these might be the lowest rates ever recorded. I checked with the author of the definitive book on interest rates, Richard Sylla, professor emeritus at NYU’s Stern School of Business, and he confirmed it.

As negative interest rates spread even to emerging Europe, they’re signaling slowing economies or incipient recessions on the continent. In interconnected global markets, the yields on 10-year U.S. Treasury notesTMUBMUSD10Y, -0.72% also could head lower as investors, desperate for yield, any yield, pile into U.S. bonds.
Also read: Tug-of-war debate over interest rates has to include taxes, inflation

That would make it much tougher for savers, especially retirees, to find low-risk vehicles that pay decent returns in the years ahead.

In congressional testimony last week, Federal Reserve Chairman Jerome Powell noted that “manufacturing, trade and investment are weak all around the world,” suggesting the rate-setting Federal Open Market Committee (FOMC) will take slowing global growth into consideration and could cut rates when it meets later this month.

Some $13 trillion in bonds are paying negative interest rates, which means bondholders actually pay for the privilege of holding an issuer’s bonds. That represents more than 20% of a total global bond market value of $55 trillion, according to Bloomberg. Other bonds are paying positive rates so low they carry a real (after inflation) negative yield as well.

“If a significant fraction of [the world’s bond market] has negative interest rates, that’s pretty unusual,” said Sylla. Even in recent history, he added, such occurrences are rare. In 1940-1941, he said, rates on short-term U.S. bonds went negative as the economy still grappled with the fallout from the Great Depression.

If you go back even further, negative yields are virtually unprecedented. Sylla took over writing and editing “A History of Interest Rates,” the definitive text on interest rates, after its original author, Sidney Homer, died in 1983. The most recent edition was published in 2005.

Homer’s ambitious research traced interest rates back to ancient Mesopotamia. Sylla says the best records go as far back as the famous Code of Hammurabi, ruler of ancient Babylon, in roughly 1800 BC. That was before King Tutankhamen sat on Egypt’s throne, before the Trojan War was fought, and long before Confucius or the Buddha were born.

Sylla says Homer’s research was all based on archaeological or documentary evidence, sometimes fragmentary, but “there were people working and lending money to each other and lending other things to each other. And so there are enough records so you can piece [it] together.”

Some civilizations, like the early Roman Catholic Church and Islam, were opposed to charging interest, but negative rates just didn’t happen, as far as Sylla knows, until the modern era. Now 14 European countries, including France, Germany, the Netherlands, and Spain, have negative interest rates on their two-year bonds.
And the negative interest rate virus is spreading to emerging European markets such as Poland, Hungary and the Czech Republic. Not too long ago, investors were throwing money at emerging markets bonds because of their higher yield. Now, they’re in a race to the bottom too.

Underlying this all is rapidly slowing growth in Europe: In April the International Monetary Fund projected sub-2% growth in major European countries. And lately there have been warnings about impending recession in Germany, Europe’s largest economy, amid worries over Brexit and slowing global activity because of the U.S.-China trade war.

“There is a slowdown going on in the world, and I think that’s one of the reasons why the biggest negative interest rates occurred just in the last month or so,” said Sylla.
That’s bad news for investors who have bought international bond funds and ETFs over the past few years on the advice of such heavy hitters as Schwab and Vanguard, who generally pushed a knee-jerk diversification argument similar to the one advisers have used for underperforming emerging-market stocks.
Also read: This is the only protection your stock-market investments will ever need

The largest international bond fund, the Vanguard Total International Bond Index Fund VTIBX, +0.26% , had total assets of $131.6 billion as of June 30th. It’s closed to new investors, though its Admiral class VTABX, +0.21% and ETFBNDX, +0.10% are available — not that you’d want to buy them anyway.
Instead, I’d stick with U.S. Treasurys — the 10-year note yielded 2.07% as of midday Wednesday, which is nicely higher than yields of other developed countries’ bonds, and Treasuries should maintain their edge if U.S. rates fall, too.

They’re also the best protection against stock market declines or bear markets. I like the SPDR Bloomberg Barclays Intermediate-Term U.S. Treasury ETFITE, +0.39% or the Vanguard Intermediate-Term Treasury ETF VGIT, +0.39% .

I know 2% doesn’t sound like a lot, and it isn’t, but it’s much better than the negative alternatives. As the old saying goes, in the land of the blind…..Well, you know the rest.

https://www.marketwatch.com/story/w...hould-you-buy-2019-07-18?mod=mw_share_twitter
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Mujahideen

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Why do people purchase bonds at a negative interest rate?
 

Krag

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I don't need more debt, I've done a good job minimizing it this year and have a high credit rating like you can take that to the bank!
 

Mujahideen

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Is that a trick question?

:D
Nope.

Just trying to make sense of how they can even get away with it. Who in their right mind would do that?

The lender gets less money than they started with?
 

michael59

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wtf? siwss bonds were I have to pay? f that shit, I know a hospital that needs some bondage. U think I am after milky choc-oh-let?

muni and i'n you do the thing they have to have then you do not promote the gang rape of people who just do not know but promote a place for those who are trying to help.

look they are not muni bonds but they carry the same tax ref. as in NO TAX. and you get your payout.
 

FunnyMoney

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Nope.

Just trying to make sense of how they can even get away with it. Who in their right mind would do that?

The lender gets less money than they started with?

The tricks and cons used by the banksters are numerous and difficult to understand at times.

The video I posted (The Money Masters) on several other threads is 4 hours long for a reason: it takes that long to decipher and explain these cons.

For your question:

The negative rate is only the rate between the central bank and the member banks.
The member banks are getting money from the central bank for "free" or without interest payments when at 0% rate; and they get some "free' money when rates are negative % because they don't have to pay the entire amount borrowed back.

Theory is that when the member banks turn around a loan to the public (usually just their friends), they can then charge less interest, although that interest is still a positive % rate.

You could take this theory further along and ask: what if rates go so far into negative territory that member banks could actually loan out to customers at negative as well?

What that means is the preferred customers will have a much bigger advantage over others, as they too can make investments using borrowed money which they don't need to ever pay all of it back.

In reality, the banks and the customers getting such a sweet deal, don't actually pass along the sweet deal to others and simply park (or invest) the funds and collect the difference.

It is just one more trick in the banksters arsenal to make the topmost elite get more wealth and power and for those insiders just slightly below them do very close to the same.

While the public gets a bit better deal (slightly lower rates) if they can actually get a loan, the insiders and banks make a killing in this environment.

The wealth gap or difference between the elite class and the worker class expands exponentially under this situation (rates negative or extremely low for elites and rates still positive for others).
 
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michael59

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it is called negative for a reason.

I want a gram of sum substance
U have the opportunity for me to have that substance
substance costs X
but I have to purchase X before you get it.

so it is X+

I have to pay you x (+)x's cuz ur damm ass do not have any gas to go get the stuff.
 

michael59

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I have to pay you x (+)x's cuz ur damm ass do not have any gas to go get the stuff.
sorry for the what ever it is called...oh! para-noid shit....

look U want a bump then go get a bump BUT on the chance that the one you ask to get you the bump cann....CANNOT...afford it then you have to pay for the dweeb to fetch it for you!

AND, that my friends is negative.
 

ZZZZZ

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Nope.

Just trying to make sense of how they can even get away with it. Who in their right mind would do that?

The lender gets less money than they started with?
A lot of institutions and mutual funds are required by their charters to own xx% of their portfolios in bonds. They have no choice but to buy buy buy!

Other than that, cash in the mattress makes a lot more sense than a negative interest rate bond.
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Buck

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A lot of institutions and mutual funds are required by their charters to own xx% of their portfolios in bonds. They have no choice but to buy buy buy!
Other than that, cash in the mattress makes a lot more sense than a negative interest rate bond..
Whether by suggestion, by opinion, by education, by any means, once the collar is put on, with no fore-sight, danger is always as close as an unexpected consequence is away

and as long as there will never be any consequences towards protection of bad trades / manipulation / 'oops, i wasn't so professional then, It's Gone', this will continue to be the gamblers paradise that it was sold, to get many to believe, that it isn't

imho, it's a suckers bet and to be bound by others to remain a sucker is too much for me to handle, i'll refuse to participate unless and until there are matching funds to the tune of 100% or better because then and only then will I consider myself to be making ANY profit (think 401k investment w/matching funds)
 

ZZZZZ

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Whether by suggestion, by opinion, by education, by any means, once the collar is put on, with no fore-sight, danger is always as close as an unexpected consequence is away

and as long as there will never be any consequences towards protection of bad trades / manipulation / 'oops, i wasn't so professional then, It's Gone', this will continue to be the gamblers paradise that it was sold, to get many to believe, that it isn't

imho, it's a suckers bet and to be bound by others to remain a sucker is too much for me to handle, i'll refuse to participate unless and until there are matching funds to the tune of 100% or better because then and only then will I consider myself to be making ANY profit (think 401k investment w/matching funds)
Most 401ks have a "cash" money market option or the equivalent. It may pay near-zero interest, but at least it's liquid and it won't go negative.
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Buck

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Most 401ks have a "cash" money market option or the equivalent. It may pay near-zero interest, but at least its liquid and it won't go negative.
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Every one I ever had, i placed all my funds in the Guaranteed Funds Account which equated to approx 3% per year Guaranteed across some actuarial accounts/charts/bloodredpotofgumbo/professional advice they could muster...and my several, now expired, accounts, produced a profit, and I took them all upon separation of service

My last job offered 2% matching funds, I didn't participate until I was told my next Bonus was available for my 401K account as long as I had one...bastards...i created one, took his Bonus and 2% and the mf'r charged me, when he closed his business...10% Administration Costs to close the damn thing...only 401k I ever had where i lost money, but the owner lost face as he screwed over 40 men...his loss

over 4 plans, except for one, i didn't lose a cent, no matter what the markets did nor the Fed / State Tax Rate

but, 401Ks will be the first to be replaced with IOU's, there will be no need for any 'insurance' as most people won't feel any effect

anyway, it's not a done party yet and if given another chance, and the matching funds were above 20% it'd be a done deal again, I'd participate

Guaranteed Funds Account

iirc, it was My Friend!
 

Merlin

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Every one I ever had, i placed all my funds in the Guaranteed Funds Account which equated to approx 3% per year Guaranteed across some actuarial accounts/charts/bloodredpotofgumbo/professional advice they could muster...and my several, now expired, accounts, produced a profit, and I took them all upon separation of service

My last job offered 2% matching funds, I didn't participate until I was told my next Bonus was available for my 401K account as long as I had one...bastards...i created one, took his Bonus and 2% and the mf'r charged me, when he closed his business...10% Administration Costs to close the damn thing...only 401k I ever had where i lost money, but the owner lost face as he screwed over 40 men...his loss

over 4 plans, except for one, i didn't lose a cent, no matter what the markets did nor the Fed / State Tax Rate

but, 401Ks will be the first to be replaced with IOU's, there will be no need for any 'insurance' as most people won't feel any effect

anyway, it's not a done party yet and if given another chance, and the matching funds were above 20% it'd be a done deal again, I'd participate

Guaranteed Funds Account

iirc, it was My Friend!
When the matching funds were 7%, that was good enough for me. But I understand your anger over the closing costs; I never experienced that. As I recall, I had some of my money in the guaranteed account. But it was in the SP500 index account that my profits soared. In any case, the 401k account assets transferred to my IRA and all was well.
 

Buck

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401k's are a great way for the average american worker to save some money for later on in life...my problem, I learned this a long long time ago...

I'm not that average...I pulled my funds, took the hit, took what was left, except for the one time; the rest were all profit, then bought PM's and paid down debt...sometimes I did it in reverse: Paid down debt then bought PM's

:2 thumbs up:

I'm getting closer to winding my life down and my last attack is against my remaining debt...I've got no more 401's to yank any funds from so, I'm onto another path at the moment...