When the central bank bets on bonds that guarantee to lose money, should you notice?
The European Central Bank started buying covered bonds with negative yields as its asset-purchase program reduces the supply of the highly rated debt, according to two people familiar with the matter.
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“The ECB has caused this situation by being a big buyer and has exacerbated the already negative net supply of covered bonds,” said Joost Beaumont, a fixed-income strategist at ABN Amro in Amsterdam. “If the ECB buys more, yields will go still lower and that’s going to affect the ECB itself.”
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The ECB, which is also buying government bonds and asset-backed debt, has said it will buy negative-yielding securities up to its cash deposit rate of minus 0.2 percent.
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“Supply in positive yields is getting scarce and the ECB may have no other choice to fulfill its targeted purchase volume than to buy negative-yielding bonds,” said Tobias Meyer, an analyst at Norddeutsche Landesbank in Hanover, Germany.
So deflation is a monetary event in which currency is destroyed, and herefore prices fall. Credit deflation is a monetary event in which credit iss dtroyed and prices of things denomited in credit fall. Seciurities are real estagte are largel denominated in credit.
Bu prices are rising in bot right now. Yes, but at a negative interst rate, the tide has turned. Negative .02 % interest is not an anomaly, it is just the start. Not a warning signal for the bankers to adjust, the warning signal the bankers cannot adjust.
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