Gyroscopic Investing

There has been a lot of discussion on whether bond yields could go negative.  Apparently they already have in Europe.  Interesting.

http://www.oyetimes.com/business/44-mar ... cal-stress

FarmerD wrote: There has been a lot of discussion on whether bond yields could go negative.  Apparently they already have in Europe.  Interesting.

http://www.oyetimes.com/business/44-mar ... cal-stress

Wow.  Harry Browne pointed out on his radio show that this happened during the Great Depression With dollars.  Negative yields on T-bills!

To me, though, this is even more dramatic.  Even though Germany is a very strong, fiscally prudent country, it's still technically possible for them to default.  Having said that, I think that Germany would be the last man standing if mass defaults ravaged the Eurozone.  If Germany was on the brink, I do feel that the ECB would print.

This happened for a few T-bill auctions in late 2008/early 2009 I believe.

I think that our negative yield discussion was more about whether negative yields could move very far out on the curve.  My intuition is that the yield curve may flatten a lot, but that negative yields would never go out more than a year or so on the yield curve.

MediumTex wrote: This happened for a few T-bill auctions in late 2008/early 2009 I believe.

I missed that particular bit of news when it happened, I think, but it does sound familiar now that you mention it.  I definitely remember some negative real yield TIPS auctions as well.

MediumTex wrote:My intuition is that the yield curve may flatten a lot, but that negative yields would never go out more than a year or so on the yield curve.

Yeah, I strongly believe so as well.  The interest rate risk becomes tremendous after a certain point.  Hard to see how you beat physical cash with a higher yield and no interest rate risk.

Still, it wouldn't be the first (or last) time that reality has grabbed my preconceived notions by the scruff of the neck and tossed them in a blender.