NUTS!! I'll pay you to borrow MY money

Aug 21, 2019 | Jeremy Goldfarb


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Sooooo....the German government concluded a EUR795,000,000 bond sale earlier this week. The bonds mature in 2050 and pay absolutely no interest whatsoever. Oddly enough, they were able to sell said bonds at a premium, so they actually collected EUR 824,000,000 at the time of sale, a premium over the principal value of the bond. Yup.....grab a drink and pay attention.

 

You may have heard about negative yielding bonds on the news recently, and this is exactly how they work. 0 coupoun, premium price = negative yield for the buyer. So, why would you buy this, and how could you possibly make any money at all? Well, the purchaser is basing the investment on the assumption that:

a) the investment is safe and they will get repaid

b) rates will continue to decline in the future and they will be able to command a premium for their paper.

 

It's nuts, I know. So drink up and read the article (The article is here) ....we will talk more about this at a seminar I am hosting in September. Be on the lookout for that.