ECB and Inflation

[Valmy]

Benny Hitler, car salesman.
"Yes, you can actually fit five Jews in the ashtray".

An ashtray?  You pro-tobacco monster!

[Liep]

The cost for new loans are down to 161kr a month ($24.38) for 1,000,000kr ($151405.05) thanks to a negative interest of 0.53%

Holy housing bubble!

[Sheilbh]

This still makes no sense to me:

[Razgovory]

It's a club.  You use them bash people in the head with.  Presumably it's one to hit people with a "Negative yield", I guess that's the length of the club in each country.

[Zanza]

This still makes no sense to me:

It allows governments to reduce their deficit and debt. I would expect it to stay like this for a while. As long as it costs interest to deposit money at the ECB, negative yields can be the less costly option.
There is now more than 2 trillion in EZ debt with negative yield.

[Sheilbh]

But surely the worry is why do large funds want to sit on deposit, or with negative yield bonds? Are there so few growth opportunities? Do the markets think there's going to be a prolonged period of low growth and/or deflation (a la Japan)? Or is it because they need to build up their capital requirements? Why is there so little appetite for risk?

As I say I still don't understand and there's signs the EZ could be on the turn. Is this just part of the 'new normal'?

It allows governments to reduce their deficit and debt.

Doesn't that depend on the rate of deflation as well?

If the markets will pay you to borrow money and there's any infrastructure work needing doing, now's the time to do it, especially for the countries on the left of that chart.

[Martinus]

But surely the worry is why do large funds want to sit on deposit, or with negative yield bonds? Are there so few growth opportunities? Do the markets think there's going to be a prolonged period of low growth and/or deflation (a la Japan)? Or is it because they need to build up their capital requirements? Why is there so little appetite for risk?

Aren't large funds mainly pension funds? I believe they are heavily regulated as to what they can invest in and are mandated to put at least a part of their money into safest assets. It could very well be that German bonds and the like are the only such available asset.

And yes, at least in Europe right now, a lot of private equity funds are sitting on money, as there are so few good targets.

[Sheilbh]

Aren't large funds mainly pension funds? I believe they are heavily regulated as to what they can invest in and are mandated to put at least a part of their money into safest assets. It could very well be that German bonds and the like are the only such available asset.

That would also explain why certain big companies have been able to have negative interest bonds. What's safer than Nestle?

[Martinus]

Aren't large funds mainly pension funds? I believe they are heavily regulated as to what they can invest in and are mandated to put at least a part of their money into safest assets. It could very well be that German bonds and the like are the only such available asset.

That would also explain why certain big companies have been able to have negative interest bonds. What's safer than Nestle?

Yup. Many pension funds, especially in Western countries, have also an "ethics" requirement. Likewise, Islamic sovereign funds cannot invest in some businesses. All of this makes the investment decisions not entirely driven by profit.

[Sheilbh]

As awful as this possibly this, that's why I plan to invest my (putative, imaginary, future) pension savings into tobacco and booze companies 

[Admiral Yi]

Is that chart showing negative nominal or real yields?

[Zanza]

Few investment opportunities as and a glut of risk-averse savings by an affluent and aging society. The problem we have is over-saving. Which is a obvious result of capital based pensions.

[MadImmortalMan]

These types of bonds should not be counted as valid for reserve purposes at this point.

[mongers]

As awful as this possibly this, that's why I plan to invest my (putative, imaginary, future) pension savings into tobacco and booze companies 

The companies or their products. 

[Martinus]

As awful as this possibly this, that's why I plan to invest my (putative, imaginary, future) pension savings into tobacco and booze companies 

You just do it to have an excuse that, when you are buying smokes and booze, you are indirectly helping your pension.