Madness

[ny_quant]

Two European companies -- French drugmaker Sanofi and German household products maker Henkel -- last week became the first firms to persuade investors to pay them to borrow euros. By selling bonds yielding minus 0.05 of a percentage point, they may well have signaled the bond market's peak

https://www.bloomberg.com/view/articles/2016-09-13/the-bond-market-is-suffering-a-ukrainian-chicken-moment

Насчёт пика не знаю. Как говорится, you’ve seen nothing yet. Во всяком случае, если б меня ещё недавно спросили может ли такое быть, я бы сказал, что такох идиотов не бывает (вернее, бывают, но они уже потеряли свои деньги на чем-то другом) и опять был бы неправ.

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[henryviii.livejournal.com]

The Bank of Japan, the European Central Bank and several smaller European authorities have ventured into the once-uncharted territory of negative interest rates. But what are negative rates, and how do they come about? Here are some questions and answers.

How do central banks work?

All are a bit different, but as a rule the central bank is the bank for a country’s (or monetary union’s) banks. Commercial banks have accounts with the central bank, just as households and businesses have accounts with commercial banks. A commercial bank’s account at the central bank is part of what makes it a bank: It allows it to go about the daily business of moving money.

What is a negative interest rate?

It’s like a normal interest rate, except the lender pays the borrower.

Back to central banks…

The most basic rate in a financial economy is the rate one commercial bank will pay another for the simplest, shortest loan: a loan of electronic cash overnight. Since commercial banks use the central bank as their bank, such a loan moves money from one bank’s central-bank account to another’s. The funds in these accounts are called reserves.

So how does the central bank influence that rate, called the overnight rate, or the Fed-funds rate in the U.S.?

First, it can directly set some boundaries.

The central bank can lend to commercial banks, simply by creating new reserves. Perhaps the commercial bank that is borrowing is doing so because it needs the reserves to make a transfer to another bank—in which case the new reserves would be moved to the central-bank account of that second bank.

The central bank can charge interest on the loan it made to the first bank, and it can pay interest on the deposit it is taking from the second bank. Those rates provide a ceiling and floor on the overnight rate: One bank wouldn’t borrow reserves from another bank if it could get the same loan cheaper from the central bank. Likewise, one bank wouldn’t lend reserves to another if it could get a better rate simply by leaving them on deposit.

Historically, central banks have kept broad space between the floor and the ceiling, and have manipulated the overnight rate by stepping in to the market for reserves. But that technique is less powerful in the era of quantitative easing, and central banks are now directly making use of the boundaries (or at least of the floor.)

What rate is now negative in Japan and the eurozone?

The deposit rate—the floor. Instead of getting paid for depositing with the central bank, the commercial bank now pays the central bank when it does.

Does this mean “interest rates” are negative?

Some, but by no means all. The ECB’s chief interest rate is its “main refinancing” rate—a rate paid by banks when they borrow from the ECB for longer terms than overnight. That rate is 0%. The Bank of England uses a deposit rate as its principal rate. (It is positive, at 0.25%.) To most people, “interest rates” means the rates paid on things like mortgages or car loans or credit cards. With rare exceptions, those rates are still positive.

How does a central bank actually impose a negative rate on deposit accounts?

It makes the electronic balances in those accounts shrink.

What does a commercial bank do when deposit rates are negative?

In theory, it should want to get rid of its extra reserves, because those have to go in a central-bank deposit account and will be shrunk. (Most central-bank regimes provide a way to avoid at least some of the negative-rate penalty: Banks are only charged for reserve balances above a certain amount, for example. But holding additional reserves carries a cost when rates are negative.)

[ny-quant.livejournal.com]

Спасибо, это офигенно. Я все же не понял одну деталь: they're charging negative rate on all reserves (which would be completely devilish) or only to excess reserves?