Sovereign debt bubble thread

[alfred russel]

I am not particularly good in accounting, but how does giving them government bonds that they use to get cash from the ECB recapitalize the bank? It doesn't seem to change the equity and just gives them a bit of liquidity.

When Spain gives them the bonds, the entry would be:

debit Invested Assets
credit Paid in Capital

(increases long term assets and increases equity)

When the bonds are exchanged for cash:

debit Cash
credit Invested Assets

(increases cash and decreases long term assets)

Net effect: increase cash and equity.

[MadImmortalMan]

Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.

[Admiral Yi]

Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.

Two things to keep in mind with sovereign yields is that banks get to count them at face value for Tier 1 capital and they can be used to collateralize other transactions, like central bank borrowing.  For some transactions I think they're the *only* permitted form of collateral.

[Barrister]

Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.

Wait - so people bought 3 month Swiss treasuries that will be worth less 3 than the purchase price on maturity?





Okay, I get it.  At least it'll be Swiss Francs, not Euros.


On a slightly related note I know the Bank of Canada would absolutely LOVE to raise Canadian interest rates in order to cool our own housing bubble, but are afraid that'll cause the loonie to absolutely skyrocket given all the instability everywhere around the world.

[PJL]

Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.

Well if bond rates are negative in some countries, then perhaps negative interest rates aren't such a weird idea. I know there was a report recently that suggested the the BoE should try doing just that.

[alfred russel]

Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.

And when it is, winnings for those shorting long term government bonds! 

[alfred russel]

Swiss 3-month treasuries went for -0.61% yield at today's auction. When people are paying you to take their money, isn't that a sign that something isn't balanced? Somewhere, there is a big pile of collected energy waiting to be released.

Two things to keep in mind with sovereign yields is that banks get to count them at face value for Tier 1 capital and they can be used to collateralize other transactions, like central bank borrowing.  For some transactions I think they're the *only* permitted form of collateral.

I don't know of any system that counts even the most secure bonds as preferable to cash.

However, cash needs to be held in a bank. Us little people don't worry about bank collapses because we have insurance, but institutions don't have that luxury. A modestly negative yield can be seen as insurance the money won't vanish in the night, or convert to some crappy southern european monopoly money.

[Sheilbh]

Spanish government's briefing that the ECB's accepted the idea.

The Spanish government changed their line on this yesterday.  The ECB's now issued a forceful statement saying they don't accept it and weren't briefed.

[Iormlund]

It's amazing how Rajoy has managed to surpass Zapatero's incompetence in such a short time. Most would have considered such a feat impossible. 

[MadImmortalMan]

Looks like we're going into another season of herky jerky euromarkets. The stair-step charts caused by after-hours moves back in the fall were just silly. Best way to go was buy a straddle at the close every day and sell it in the morning. 

Whatever they're doing at this conference is not going over well.

[Martim Silva]

The Spanish government changed their line on this yesterday.  The ECB's now issued a forceful statement saying they don't accept it and weren't briefed.

Yes, Rajoy just popped this out of nowhere. Needless to say, Frankfurt was NOT happy about suddenly being made to pay for possibly all the bankrupting spanish banks

And with financial holes being found all over the spanish autonomous regions (Catalunya already asked for State aid to pay its bills), there seems to be no way out for Spain other than to get a bailout.

Which they don't want, because they say that the results in other countries was "disastrous". But they also don't have alternatives and seem to be in a state of severe dellusion about their ability to face this disaster. The country is doomed, but nobody wants to admit it. They're in the deck of the Titanic, drinking champagne and listening to the Orchestra.


In the meanwhile, Rösler dropped by Portugal to tell us how to cure our economic problems... someone get this idiot out of there, he's been spouting babble on and off camera! He's like Rajoy and Zapatero combined.

[Zanza]

In the meanwhile, Rösler dropped by Portugal to tell us how to cure our economic problems... someone get this idiot out of there, he's been spouting babble on and off camera! He's like Rajoy and Zapatero combined.

We have to listen to his prattle the rest of the year. 

[Iormlund]

In the meanwhile, Rösler dropped by Portugal to tell us how to cure our economic problems...

Don't leave us hanging!

[Sheilbh]

In the meanwhile, Rösler dropped by Portugal to tell us how to cure our economic problems... someone get this idiot out of there, he's been spouting babble on and off camera! He's like Rajoy and Zapatero combined.

We have to listen to his prattle the rest of the year. 

Germany's Clegg?

[Admiral Yi]

Germany's Clegg?

Jaluka was a great band.