Thursday, September 8, 2016


A reader I hadn't heard from before asked this of yesterday's post:  Why would people pay for the right to lose money?"  Which is a hell of a good question having a simple answer.  People don't.  Oh, some do I suppose who are willing to pay for safety and view the 10 year Bund as a safety deposit box, but people don't buy this stuff.  Traders do, and of course the next question is why?  Well, there's an answer for that as well; they have a put to the Central Banks of the world who are buying this stuff as part of their QE programs.  In the meantime they can run it around a bit and make a pip here, two pips there or lend it out by way of repos or use it to create all sorts of wonderful, totally risk-free derivatives that can be sold to investors anxious for yield just like mortgage backed securities.  Got it now?  Not one single bit of value is created but you sure can make a lot of money which in the end is good...I guess.

Oh, by the by, Ireland just sold one billion Euros of 10 year at a yield of 0.33%.  Demand was said to be "gratifying," which means mothers and first born were for sale in exchange for a piece of the issue.    It will not be long before the Fed is being asked...Little Paulie will probably be leading the inquiry... why the 10 year Over Here is at 1.53%  and what are they going to do about it?  It's actually a good question given relative value.  Maybe it's because the U.S. already owes $20 Trillion on the balance sheet?  Could fundamentals play a role?  Just asking.

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