Core inflation running in the US at 2,3% - 2 yr yields at 0.679% - Who is nuts in this game?

Visaria · Jul 8, 2016

short cash bonds and hold them to maturity

ironchef said:
You are right, I agree. But is there any way individuals can take advantage of the negative interest rate situation? e.g., trading currency futures?

Thanks.

Martinghoul · Jul 8, 2016

Visaria said:
short cash bonds and hold them to maturity

Erm, what are you gonna do with the cash?

ironchef · Jul 8, 2016

Martinghoul said:
Well, you can, sorta, but, firstly, you won't be able to do that for 50 years. Secondly, whichever way you end up doing it as an individual in the mkt, you'll be posting margin. The best thing you can do is borrow, assuming the rate isn't too high.

If the German/Swiss short term interest rates are negative, would the premium on some German equity options be discounted to below intrinsic value, especially those that paid high dividend? If so, isn't it the same as borrowing at negative costs, to a certain extend? I welcome your critics and comments.

Regards,

Martinghoul · Jul 9, 2016

ironchef said:
If the German/Swiss short term interest rates are negative, would the premium on some German equity options be discounted to below intrinsic value, especially those that paid high dividend? If so, isn't it the same as borrowing at negative costs, to a certain extend? I welcome your critics and comments.

Regards,

Well, firstly, you don't discount at govt bond-derived rates. Like I mentioned, a rate at which German/Swiss govt can borrow won't apply to a regular mkt participant. Secondly, yes, if you were to find sufficiently long-dated options where their mkt value would be computed using a negative discount rate, there could be some interesting effects. However, much will depend on a variety of other arrangements. It's complicated

.

Visaria · Jul 9, 2016

Martinghoul said:
Erm, what are you gonna do with the cash?

The cash received from the short position? I don't know!

Martinghoul · Jul 9, 2016

Visaria said:
The cash received from the short position? I don't know!

And that's precisely the problem...

ironchef · Jul 10, 2016

Martinghoul said:
Well, firstly, you don't discount at govt bond-derived rates. Like I mentioned, a rate at which German/Swiss govt can borrow won't apply to a regular mkt participant. Secondly, yes, if you were to find sufficiently long-dated options where their mkt value would be computed using a negative discount rate, there could be some interesting effects. However, much will depend on a variety of other arrangements. It's complicated .

I am curious. I don't have access to EU/German/Swiss options market data. Have you looked at them? Especially for long dated options?

Thanks.

Martinghoul · Jul 11, 2016

ironchef said:
I am curious. I don't have access to EU/German/Swiss options market data. Have you looked at them? Especially for long dated options?

Thanks.

Not recently... Howvever, my recollection is that there's really nothing especially sexy to do arnd negative rates.