Finance people…chime in!

[GoUSC]

Why would anyone buy a Japanese government bond that pays less than 2% when you can buy a US bond at well over 5%? Am I missing something?

http://www.bloomberg.com/apps/news?pid=20601087&sid=aXbfMoO9UDng&refer=home

[blue_sky]

Because you believe you’d get a return of at least 3% better on the Yen than US Dollars, as the bonds are denominated in different currencies.

[blue_sky]

Because you believe you’d get a return of at least 3% better on the Yen than US Dollars, as the bonds are denominated in different currencies.

[Nancy_s soothsayer]

Maybe because almost every day going forward the dollar is worth less and the yen is worth more when you buy something.

[Nancy_s soothsayer]

Maybe because almost every day going forward the dollar is worth less and the yen is worth more when you buy something.

[bsrsharma]

Because investors with large amount of money to invest would be wise to diversify their holdings to reduce their currency risk exposure. This is definitely needed by Central Banks to hold their balance of trade surplus. For example, China, which earns shiploads of greenbacks due to their exports to US would be stupid to keep all the $ that we (Fed) can depreciate and render them worth less (as a way of settling our National Debt fox example!). By diversifying their reserves into Yen, Euro etc, they will reduce the risk.

[bsrsharma]

Because investors with large amount of money to invest would be wise to diversify their holdings to reduce their currency risk exposure. This is definitely needed by Central Banks to hold their balance of trade surplus. For example, China, which earns shiploads of greenbacks due to their exports to US would be stupid to keep all the $ that we (Fed) can depreciate and render them worth less (as a way of settling our National Debt fox example!). By diversifying their reserves into Yen, Euro etc, they will reduce the risk.

[GoUSC]

Thanks very much! I knew diversification had some part in it… 🙂

[GoUSC]

Thanks very much! I knew diversification had some part in it… 🙂

[davelj]

Anyone who buys a 5-year note yielding 1.5% is f*cking insane. I don’t care what currency it’s in. If you want to diversify your currency holdings (or bet on a currency, for that matter) then just buy the currency; there’s no need to commit to 5 years at a paltry 1.5%. I would put money in a bank at 0% or under my mattress before I’d commit to a 5-year note at 1.5%. If rates uptick just a little that bond will get whacked – do the math. And if you’re holding it until maturity, well… you’re just getting 1.5% per year. So, the Nips are crazy. What else is new?

Of course we’ve got our share of crazies too… we’ve got people willing to hold 10-year notes yielding 5.5% or thereabouts, which is barely above inflation. Meanwhile, you can get a CD that yields almost the same rate with almost zero duration risk. Go figure.

The world’s gone mad. But at least it’s entertaining.

[davelj]

Anyone who buys a 5-year note yielding 1.5% is f*cking insane. I don’t care what currency it’s in. If you want to diversify your currency holdings (or bet on a currency, for that matter) then just buy the currency; there’s no need to commit to 5 years at a paltry 1.5%. I would put money in a bank at 0% or under my mattress before I’d commit to a 5-year note at 1.5%. If rates uptick just a little that bond will get whacked – do the math. And if you’re holding it until maturity, well… you’re just getting 1.5% per year. So, the Nips are crazy. What else is new?

Of course we’ve got our share of crazies too… we’ve got people willing to hold 10-year notes yielding 5.5% or thereabouts, which is barely above inflation. Meanwhile, you can get a CD that yields almost the same rate with almost zero duration risk. Go figure.

The world’s gone mad. But at least it’s entertaining.

[Coronita]

Anyone who buys a 5-year note yielding 1.5% is f*cking insane. I don't care what currency it's in. If you want to diversify your currency holdings (or bet on a currency, for that matter) then just buy the currency; there's no need to commit to 5 years at a paltry 1.5%. I would put money in a bank at 0% or under my mattress before I'd commit to a 5-year note at 1.5%. If rates uptick just a little that bond will get whacked – do the math. And if you're holding it until maturity, well… you're just getting 1.5% per year. So, the Nips are crazy. What else is new? Of course we've got our share of crazies too… we've got people willing to hold 10-year notes yielding 5.5% or thereabouts, which is barely above inflation. Meanwhile, you can get a CD that yields almost the same rate with almost zero duration risk. Go figure. The world's gone mad. But at least it's entertaining.

 

…..Or open an Emigrant Direct savings account that yields about 5.05% for short term cash reserves. (ok slightly less). Screw the cd.

 

[Coronita]

Anyone who buys a 5-year note yielding 1.5% is f*cking insane. I don't care what currency it's in. If you want to diversify your currency holdings (or bet on a currency, for that matter) then just buy the currency; there's no need to commit to 5 years at a paltry 1.5%. I would put money in a bank at 0% or under my mattress before I'd commit to a 5-year note at 1.5%. If rates uptick just a little that bond will get whacked – do the math. And if you're holding it until maturity, well… you're just getting 1.5% per year. So, the Nips are crazy. What else is new? Of course we've got our share of crazies too… we've got people willing to hold 10-year notes yielding 5.5% or thereabouts, which is barely above inflation. Meanwhile, you can get a CD that yields almost the same rate with almost zero duration risk. Go figure. The world's gone mad. But at least it's entertaining.

 

…..Or open an Emigrant Direct savings account that yields about 5.05% for short term cash reserves. (ok slightly less). Screw the cd.

 

[bsrsharma]

Before getting all excited about that 5% yield, remember, anyone investing in billions of $ (like Central Banks) want absolute certainty that their PRINCIPAL is safe and secure! That Emigrant Direct savings account is only insured up to $100,000 by FDIC. Anything beyond that can just “emigrate away” if the bank goes belly up!

And you need a really big mattress to put a billion $ in Ben Franklins under it.

So it boils down to currency risk diversification, preservation of principal and practicality.

[bsrsharma]

Before getting all excited about that 5% yield, remember, anyone investing in billions of $ (like Central Banks) want absolute certainty that their PRINCIPAL is safe and secure! That Emigrant Direct savings account is only insured up to $100,000 by FDIC. Anything beyond that can just “emigrate away” if the bank goes belly up!

And you need a really big mattress to put a billion $ in Ben Franklins under it.

So it boils down to currency risk diversification, preservation of principal and practicality.

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