Monday, September 9, 2019

US Stock Market Jumps On German "T-Bond" -- WSJ --September 9, 2019

Crazy. Data points from one WSJ article this morning. Again, this is from one article:
  • U.S. stocks ticked higher after economic data from Europe came in better than forecast
  • European government bond yields also rose across the board on expectations of a rate cut by the European Central Bank
  • the Italian 10-year yield rose to 0.916% from 0.885% Friday. The German 10-year bund was yielding minus 0.606%, up from minus 0.634% at the end of last week
Okay. The US market gets excited when the German 10-year bond rises to a minus 0.606% yield from a minus 0.634% at the end of last week.

You have got to be kidding.

Two questions.

With German 10-year bond yield trending toward a minus 1% yield, exactly how far can the European Central Bank cut rates? LOL. And Trump blames the Chinese for currency manipulation. LOL.

Exactly what is the difference between 0.606% and 0.634%?

Remember, when calculating with "%" -- move the decimal over two places .... so ...
  • $100,000 x 0.00606 = $606.
  • $100,000 x 0.00634 = $634.
So, if you have $100,000 sitting around, you will pay Germany $28 less if you let them hold your cash for ten years. I guess that $28 is for each year; if so, we're talking a savings of $280. Your $100,000 will return you $99,720.

Of you can buy ATT (T) which pays almost 6%. Every year, with dividend increases likely and capital appreciation almost guaranteed (over ten years). $6,000 x 10 years = $60,000, and, of course, one can take that $6,000/year and re-invest.

Einstein: strongest force in the universe -- compound interest.

What am I missing?

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, relationship, or career decisions based on what you read here or think you may have possibly read here.

4 comments:

  1. what you might be missing is that certain institutions, like banks and govt pension funds, have to own a certain % of AAA debt by law or mandate, forcing them into those negative rate bonds...other than that, you seem to have it about right, it's crazy..

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    1. Another reason why this is not an investment site. I was vaguely familiar with that requirement but certainly did not remember it. Thank you for noting that and taking time to write. I guess I was coming from the vantage point of the "mom and pop" investor, sort of like my dad.

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    2. i wasn't being critical, i was just trying to answer your last question, "What am I missing?"

      i am figuring we will soon see negative rates in the US soon, too; the incentive for the government to start earning interest on all that debt is too great to miss out on...

      but if your dad owns long Treasuries, remember they'll go up in value as rates go down..

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    3. Oh, I knew you were not being critical. I think I'm pretty easy-going except when it comes to the Bakken. I take that very, very seriously. I learn a lot from readers. No, Dad, to the best of my knowledge was always interested only in shares of common stock, never bonds or preferred shares/stock.

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