What goose egg bound?

German bond yields plough negative , equally reported inward the Wall Street Journal.

Source: Wall Street Journal

Negative involvement rates are a big puzzle. Easy stories lady friend the point: "flight to character ," "need for collateral ," etc. Those stories don't explicate why bonds are worth to a greater extent than than money.  There's no to a greater extent than character or improve collateral than cash!

So why would anyone endure a negative charge per unit of measurement on authorities bonds when they tin strength out represent cash instead?

For about of us it powerfulness brand sense. Cash is clunky , unsafe in addition to expensive to lay nether a mattress. Many banks directly accuse for the privilege of depositing. So an private powerfulness prefer a rattling slightly overpriced authorities bond to cash.

But a banking concern has a improve option. Why non only represent reserves? Reserves are similar cash , in addition to equally rubber in addition to liquid (more so) than authorities bonds. I powerfulness convey guessed that entirely people were buying these bonds. It seems I'm incorrect (unconfirmed rumor) -- banks are buying in addition to belongings the bonds.

So why would a banking concern represent a bond at negative involvement charge per unit of measurement rather than represent reserves? Sometimes at that topographic point are arcane technical , accounting or regulatory reasons , but in addition to hence far nobody I've talked to has identified i here.

The best storey I've heard in addition to hence far , suggested yesteryear i of the smart students inward my MBA shape , is this: It's a bet on Federal Republic of Federal Republic of Germany leaving the Euro. If Federal Republic of Federal Republic of Germany leaves the Euro , it is probable to redenominate its bonds in addition to and hence pay off inward novel DM. The ECB is probable to exit reserves inward Euros. So , if you lot desire an property that volition pay off inward novel DM after Federal Republic of Federal Republic of Germany leaves the Euro , High German authorities bonds are a skillful bet.

That storey pierces the aught bound. There actually is no restrain to how depression bond yields tin strength out become if you lot mean value bonds powerfulness hold upward paid off inward a improve currency than the i you lot tin strength out materials inward your mattress. 

It sounds a lilliputian outlandish , in addition to the chances that Federal Republic of Federal Republic of Germany leaves the Euro inward six months seems pretty depression to me. Still , it's a dainty story. Does anyone convey a improve one? Remember , you lot can't answer why bonds await in addition to hence skillful -- you lot convey to explicate why bonds are a improve property than reserves , for a High German banking concern to hold!