#44371
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GeorgiaSaint
Veteran
member9

Oh certainly these are not typically going to be small individual investors. But the point is exactly what you stated: “because you think the alternatives are even worse.” And if large institutional investors are willing to purchase 5- and even 10-year bonds at negative yields, they’re not just hedging against the next market correction.

There was some interesting research done years ago by Dick Fabian (the old “Telephone Switch Newsletter”), showing that during virtually any 5-year period, using the 200-day moving average (then 39 week average), one could make considerable money by simply buying into or selling out of mutual funds that tracked the broad market. That type of strategy has been refined substantially with modern computers and instantaneous tracking of markets 24/7, but the basic principle is still the same – that over 5-year periods, normal fluctuations will provide substantial gains with relatively minimal switching in and out of investments.

So if sophisticated (?) institutional investors tie up their money for 5 to 10 year period, and interest rates go substantially up, they’ll lose huge amounts if/when they go to sell these zero to negative yield instruments. It concerns me more than a little bit that I just can’t wrap my head around a 10-year commitment of money that is actually guaranteed to depreciate. What scenario are they trying to guard against? Seems like the answer to that question may be: TEOTWAWKI. But then what government will still be around to pay back that promised “investment?”

GS
"Ye hear of wars in far countries, and you say that there will soon be great wars in far countries, but ye know not the hearts of men in your own land."