Negative Interest Rate

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a rate below zero, whereby the lender, actually or technically, pays Interest to the borrower In
!""!, #or e$ample, the #ederal #unds rate was lower than the rate o# in#lation, resultin% in a
real interest rate that was, technically, ne%ative
&n e$ample o# a ne%ative interest rate in the literal sense is a private placement with
institutional investors o# debt'plus'warrants, a security called Squarz (pronounced )s*uares+,
o# Ber-shire Hathaway .orporation, controlled by the /all 0treet le%end /arren Bu##ett
1oldman 0achs, which desi%ned the structure in mid'!""!, called it the )#irst ever ne%ative'
coupon security+ Ta-in% advanta%e o# low mar-et interest rates and hi%h stoc- mar-et
volatility, Ber-shire would pay about 23 a year on the bonds bein% issued But the investor
would also receive a warrant allowin% the purchase o# Ber-shire stoc- and to -eep the warrant
alive, investors would have to pay a hi%her rate, perhaps 2453, at the same time Ber-shire
made the interest payments
The net e##ect was a ne%ative interest rate
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Re: France sells bonds at negative interest rate
It means means the buyers are paying to receive less money back.
Who in their right mind would do that? No one. So what this tells me is that managed
funds, Mutual unds, I!"s, #overnment managed accounts, yadda yadda funds along
these lines managed by a third party are being used to buy these bonds. It$s ugly.
%he rench #overnment must be willing to take the negative press because they
desperately need funding.
&uoting' RAe 19334426
Wow(
So they are basically )paying) to buy the bonds if they$re getting less back. Wtf? Who
would do that? *ere, you can borrow +,--,--- but only have to pay back +.-,---? /ind
of like that?
No, it$s more like by these .0/ bonds for ,--/
We promise to pay you .0/ on this date if you pay us ,--/ now.
It$s like giving the rench #overnment an e1cellent loan.
It$s a guarantee they$ll only loose 2k type deal, which looks good if you think anywhere
else you could put that money would loose even more
When investors are desperate for safety, and they know that huge losses are
imminent, they flock into this kind of deal
%he only necessary thing is a huge number of investors desperate for )safety) against
huge losses.