Negative Interest Rates. Load up on Long Term Bonds?

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Anon9001
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Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
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watchnerd
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by watchnerd »

Anon9001 wrote: Mon Jan 06, 2020 1:13 am My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
Long Bonds in which currency?

Interest rate arbitrage can be washed away in currency exchange rate fluctuations.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

watchnerd wrote: Mon Jan 06, 2020 1:33 am
Anon9001 wrote: Mon Jan 06, 2020 1:13 am My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
Long Bonds in which currency?

Interest rate arbitrage can be washed away in currency exchange rate fluctuations.
Local currency INR.
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watchnerd
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by watchnerd »

Anon9001 wrote: Mon Jan 06, 2020 1:41 am
watchnerd wrote: Mon Jan 06, 2020 1:33 am
Anon9001 wrote: Mon Jan 06, 2020 1:13 am My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
Long Bonds in which currency?

Interest rate arbitrage can be washed away in currency exchange rate fluctuations.
Local currency INR.
Just like stocks, you should not buy bonds, of any duration, imagining that you have any idea where interest rates will go next.

If someone told you that you can't know if interest rates will go up or down from here, would you commit money to a long bond?

Or would you stay short?

Or somewhere in between, like intermediate?
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

watchnerd wrote: Mon Jan 06, 2020 2:01 am
Anon9001 wrote: Mon Jan 06, 2020 1:41 am
watchnerd wrote: Mon Jan 06, 2020 1:33 am
Anon9001 wrote: Mon Jan 06, 2020 1:13 am My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
Long Bonds in which currency?

Interest rate arbitrage can be washed away in currency exchange rate fluctuations.
Local currency INR.
Just like stocks, you should not buy bonds, of any duration, imagining that you have any idea where interest rates will go next.

If someone told you that you can't know if interest rates will go up or down from here, would you commit money to a long bond?

Or would you stay short?

Or somewhere in between, like intermediate?
Yes it is very hard to predict interest rates. I personally would not go insane I will stick to 10 year bonds. They have long enough duration that I will benefit from negative interest rates phenomenon. I do not think interest rates of developed countries will go up in the future due to demographic and fertility issues. Many developed markets have fertility rates below 2 and have very large amounts of elderly population which is very bad for economic growth. If I were living in a developed market I would cut down my stock allocation as stock returns depend highly on economic growth.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by watchnerd »

Anon9001 wrote: Mon Jan 06, 2020 2:04 am If I were living in a developed market I would cut down my stock allocation as stock returns depend highly on economic growth.
Why do that when I can invest in emerging market stocks, instead?
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

watchnerd wrote: Mon Jan 06, 2020 2:13 am
Anon9001 wrote: Mon Jan 06, 2020 2:04 am If I were living in a developed market I would cut down my stock allocation as stock returns depend highly on economic growth.
Why do that when I can invest in emerging market stocks, instead?
It's a okay option as long as you understand EM index will have high weight in China if full A shares inclusion is implemented. China suffers same demographic issues as Europe and Japan. I think I saw estimate that the average age of Chinese will surpass American age by the middle of this century.
This is obviously very bad as China is still a developing country. Thankfully we India did not do any population control as our fertility rate is already low at 2.33.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by watchnerd »

Anon9001 wrote: Mon Jan 06, 2020 2:25 am
watchnerd wrote: Mon Jan 06, 2020 2:13 am
Anon9001 wrote: Mon Jan 06, 2020 2:04 am If I were living in a developed market I would cut down my stock allocation as stock returns depend highly on economic growth.
Why do that when I can invest in emerging market stocks, instead?
It's a okay option as long as you understand EM index will have high weight in China if full A shares inclusion is implemented. China suffers same demographic issues as Europe and Japan. I think I saw estimate that the average age of Chinese will surpass American age by the middle of this century.
This is obviously very bad as China is still a developing country. Thankfully we India did not do any population control as our fertility rate is already low at 2.33.
That all depends on which EM market fund you buy.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Valuethinker »

Anon9001 wrote: Mon Jan 06, 2020 2:25 am
watchnerd wrote: Mon Jan 06, 2020 2:13 am
Anon9001 wrote: Mon Jan 06, 2020 2:04 am If I were living in a developed market I would cut down my stock allocation as stock returns depend highly on economic growth.
Why do that when I can invest in emerging market stocks, instead?
This is obviously very bad as China is still a developing country. Thankfully we India did not do any population control as our fertility rate is already low at 2.33.
[/quote]

Actually India did, under Indira Gandhi, in the 1970s. The policy failed but left a lot of casualties.

Total Fertility Ratio has fallen in India (from memory it was just over 3, but I may be out of date). Given India's shorter life expectancy, 2.33 is more or less replacement (or less) i.e. equivalent to a developed country's 2.1 TFR. But this fall is what has happened in every developing country as it develops.

It may be that the sort of growth rates China exhibited (10%+ for nearly 30 years) are actually just impossible to achieve again for any country - a coming together of a host of favourable factors at once. If India can grow at 6-7% pa that still means a rough doubling of per capita GDP ever 15-20 years.

The problem in India is more one of education, I think. Literacy is not universal, both much school & some university education is of very poor quality. This is confusing to a westerner because of course we interact with the expats, the IIT grads etc, and to an extent the call centre workers, who are educated to western standards-- we don't see the other 90%. But India is the world leader in business outsourcing, and that is like this thin layer on top of an underdeveloped economy. India's manufacturing economy is also underdeveloped compared to East Asian countries at similar levels of development, and the opportunity of the outsourcing of the global supply chain, which was critical to East Asian development (Japan, Taiwan, South Korea, PRC etc) may just not be there, now.

Education is a problem the PRC solved in the 1950s & 60s & 70s, despite catastrophic internal policies in other areas.

India's growth is not primarily about demographics I don't think, but rather about making better use of what is already there in terms of work force, expertise, capital, infrastructure. The current growth in labour force is as much a challenge as an opportunity.

If you want demographics, you want Sub Saharan Africa, but the issues there are seriously tough (corruption, infrastructure etc).
Last edited by Valuethinker on Mon Jan 06, 2020 5:10 am, edited 1 time in total.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Valuethinker »

Anon9001 wrote: Mon Jan 06, 2020 1:13 am My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
You are ignoring currency issues, I think.

You have to take a bet on Indian political economy 20-30 years out. Do you feel confident making those predictions? I certainly do not.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

Valuethinker wrote: Mon Jan 06, 2020 5:08 am
Anon9001 wrote: Mon Jan 06, 2020 1:13 am My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
You are ignoring currency issues, I think.

You have to take a bet on Indian political economy 20-30 years out. Do you feel confident making those predictions? I certainly do not.
No currency issues considering it is local currency. I am fairly confident this country will develop with the current government. If you look at the past this is the best time to live in India. At independence literacy rate was barely 10% and India and Pakistan had similar human development. It is astonishing how richer it has gotten since 1991. If you look at this image some states of India have higher human devleopment than European country:https://i.redd.it/fy7q93xpgy841.png

Granted Moldova is the poorest country in Europe but if I shown this to my grandfather he would be shocked.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

Actually India did, under Indira Gandhi, in the 1970s. The policy failed but left a lot of casualties.

Total Fertility Ratio has fallen in India (from memory it was just over 3, but I may be out of date). Given India's shorter life expectancy, 2.33 is more or less replacement (or less) i.e. equivalent to a developed country's 2.1 TFR. But this fall is what has happened in every developing country as it develops.

It may be that the sort of growth rates China exhibited (10%+ for nearly 30 years) are actually just impossible to achieve again for any country - a coming together of a host of favourable factors at once. If India can grow at 6-7% pa that still means a rough doubling of per capita GDP ever 15-20 years.

The problem in India is more one of education, I think. Literacy is not universal, both much school & some university education is of very poor quality. This is confusing to a westerner because of course we interact with the expats, the IIT grads etc, and to an extent the call centre workers, who are educated to western standards-- we don't see the other 90%. But India is the world leader in business outsourcing, and that is like this thin layer on top of an underdeveloped economy. India's manufacturing economy is also underdeveloped compared to East Asian countries at similar levels of development, and the opportunity of the outsourcing of the global supply chain, which was critical to East Asian development (Japan, Taiwan, South Korea, PRC etc) may just not be there, now.

Education is a problem the PRC solved in the 1950s & 60s & 70s, despite catastrophic internal policies in other areas.

India's growth is not primarily about demographics I don't think, but rather about making better use of what is already there in terms of work force, expertise, capital, infrastructure. The current growth in labour force is as much a challenge as an opportunity.

If you want demographics, you want Sub Saharan Africa, but the issues there are seriously tough (corruption, infrastructure etc).
I think it was Sanjay Gandhi who done that. He gone after specific community here also. Second largest population here. Will not name the community. Thankfully it failed. Right now some states in South India have way below replacement fertility rate. Similar to European disaster. Only BIMARU states are making our fertility rate at replacement rate. The issue is these states are also extremely poor so it creates a huge population of uneducated people. I am hopeful for those states though as it wasn't long ago that whole of India was extremely poor. Africa is even riskier than India to invest in so I would avoid it. It kinda reminds me of India back in 1960s. I am not worried about this China thing being one-off as wages in Western countries are too high for manufacturing to return there. Yes automation risk is there but it is overblown and I will only believe in it when I see robots having higher IQ than mouse.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Valuethinker »

Anon9001 wrote: Mon Jan 06, 2020 6:37 am
Actually India did, under Indira Gandhi, in the 1970s. The policy failed but left a lot of casualties.

Total Fertility Ratio has fallen in India (from memory it was just over 3, but I may be out of date). Given India's shorter life expectancy, 2.33 is more or less replacement (or less) i.e. equivalent to a developed country's 2.1 TFR. But this fall is what has happened in every developing country as it develops.

It may be that the sort of growth rates China exhibited (10%+ for nearly 30 years) are actually just impossible to achieve again for any country - a coming together of a host of favourable factors at once. If India can grow at 6-7% pa that still means a rough doubling of per capita GDP ever 15-20 years.

The problem in India is more one of education, I think. Literacy is not universal, both much school & some university education is of very poor quality. This is confusing to a westerner because of course we interact with the expats, the IIT grads etc, and to an extent the call centre workers, who are educated to western standards-- we don't see the other 90%. But India is the world leader in business outsourcing, and that is like this thin layer on top of an underdeveloped economy. India's manufacturing economy is also underdeveloped compared to East Asian countries at similar levels of development, and the opportunity of the outsourcing of the global supply chain, which was critical to East Asian development (Japan, Taiwan, South Korea, PRC etc) may just not be there, now.

Education is a problem the PRC solved in the 1950s & 60s & 70s, despite catastrophic internal policies in other areas.

India's growth is not primarily about demographics I don't think, but rather about making better use of what is already there in terms of work force, expertise, capital, infrastructure. The current growth in labour force is as much a challenge as an opportunity.

If you want demographics, you want Sub Saharan Africa, but the issues there are seriously tough (corruption, infrastructure etc).
I think it was Sanjay Gandhi who done that. He gone after specific community here also. Second largest population here. Will not name the community. Thankfully it failed. Right now some states in South India have way below replacement fertility rate. Similar to European disaster.
It is at the point of demographic transition, when the dependent to worker ratio starts to fall, that countries take off. See Ireland in the 1970s & 80s & 90s. Japan in the 1950s & 60s. South Korea. PRC.

The new, uncharted territory is the Japanese one of an aging population. And yet, so far, Japan has continued to raise per capita income. And there are billions of poor people who could move to developed countries. Politically that is impossible, but surely the answer will not be zero, either.

The planet cannot support both more people and a higher standard of living in the current western sense - more meat consumption, more polluting cars, more fossil fueled electricity etc. India, being very dependent upon agriculture, is smack in the middle of those challenges.

Falling birth rates is a good thing. One of the very few signs that the human race has a collective survival instinct. That Malthus was wrong in postulating that the only solutions to overpopulation were war, pestilence & starvation (writing before the Industrial Revolution that was a very reasonable summary of human history to that point; Malthus was not so much wrong as a bad forecaster because he missed a fundamental structural change that had never happened before).
Only BIMARU states are making our fertility rate at replacement rate. The issue is these states are also extremely poor so it creates a huge population of uneducated people. I am hopeful for those states though as it wasn't long ago that whole of India was extremely poor. Africa is even riskier than India to invest in so I would avoid it. It kinda reminds me of India back in 1960s.
I agree with you re the hope in those states -- that the problems of local politics & infrastructure will be overcome.. And it's precisely the "India in the 1960s" analogy that makes me interested in Africa. Because I am old enough to remember when people wrote off India in a sentence. When Bangladesh was simply a short form for "mass starvation", etc.
I am not worried about this China thing being one-off as wages in Western countries are too high for manufacturing to return there. Yes automation risk is there but it is overblown and I will only believe in it when I see robots having higher IQ than mouse.
Global supply chains are too vulnerable to disruption. That's what the tech industry is finding. And there will be pressure from governments - there already is. It's not that western manufacturing employment will rise (it won't) it's that more will be done in regional groupings (Eastern Europe for Western Europe, for example; possibly Mexico for USA & Canada). And there is automation.

China became the manufacturing centre for the world between 1979 and 2008, say. I am just not sure that opportunity - the fortunate combination of free trade thinking, globalisation of IT, reduction in shipping costs arising from containerisation, rise of retailers like WalMart who drove that sourcing, China opening up to capitalism - not sure that that fortunate combination can occur again.

As I say, if India can keep doubling GDP every 12-15 years (5-6% pa growth; or even say 7% growth => c 5% per capita, or doubling GDP per capita every 14 years, say) consistently, that is still many times faster than almost any precedent in human history except the East Asian ones. It will stretch India's resources & infrastructure to the limit to do that.

This would still be an incredible performance in such a diverse country. I worry most about the downside of the Green Revolution. It saved India from starvation in the 60s & 70s, but it made its agriculture less resilient to environmental shocks. Same problem for things like city water supplies & air pollution. Air pollution appears to have reached the point in India where it is harming productivity (at a much earlier stage than it did so in say PRC or USA history).
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Angst »

Anon9001 wrote: Mon Jan 06, 2020 2:04 am
watchnerd wrote: Mon Jan 06, 2020 2:01 am
Anon9001 wrote: Mon Jan 06, 2020 1:41 am
watchnerd wrote: Mon Jan 06, 2020 1:33 am
Anon9001 wrote: Mon Jan 06, 2020 1:13 am My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
Long Bonds in which currency?

Interest rate arbitrage can be washed away in currency exchange rate fluctuations.
Local currency INR.
Just like stocks, you should not buy bonds, of any duration, imagining that you have any idea where interest rates will go next.

If someone told you that you can't know if interest rates will go up or down from here, would you commit money to a long bond?

Or would you stay short?

Or somewhere in between, like intermediate?
Yes it is very hard to predict interest rates. I personally would not go insane I will stick to 10 year bonds. They have long enough duration that I will benefit from negative interest rates phenomenon. I do not think interest rates of developed countries will go up in the future due to demographic and fertility issues. Many developed markets have fertility rates below 2 and have very large amounts of elderly population which is very bad for economic growth. If I were living in a developed market I would cut down my stock allocation as stock returns depend highly on economic growth.
Doesn't India's Reserve bank sell inflation linked bonds? They might interest me if I were you. My perspective is colored by my living in the US and my thinking of underdeveloped nations going hand in hand with a greater risk of inflation, vs. developed markets. But as such, taking advantage of your country's relatively high interest rates while insulating yourself from inflation risk sounds appealing. Particularly from a standpoint of taking one's risk on the equity side, and possibly allowing oneself to increase the equity percentage in their portfolio by holding very safe long-term inflation protected bonds.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

Angst wrote: Mon Jan 06, 2020 12:19 pm Doesn't India's Reserve bank sell inflation linked bonds? They might interest me if I were you. My perspective is colored by my living in the US and my thinking of underdeveloped nations going hand in hand with a greater risk of inflation, vs. developed markets. But as such, taking advantage of your country's relatively high interest rates while insulating yourself from inflation risk sounds appealing. Particularly from a standpoint of taking one's risk on the equity side, and possibly allowing oneself to increase the equity percentage in their portfolio by holding very safe long-term inflation protected bonds.
They do but they are unattractive. Last I checked you have to lock-in your money for 10 years (no pre-mature redemption allowed) and the interest is taxable defeating the purpose of calling it inflation indexed bonds because if you pay tax on the interest it is not going to beat inflation. Sovereign Gold Bonds is much more attractive at no capital gains tax but interest is still taxable. They also have lower lock-in of 4 years. I bought a large quantity of them five days ago.

https://www.capitalmind.in/2013/12/infl ... tax-slabs/
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by KlangFool »

OP,

You should buy gold instead.

KlangFool
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

KlangFool wrote: Mon Jan 06, 2020 12:29 pm OP,

You should buy gold instead.

KlangFool
I already own it. For a investor I would not recommend exceeding 25% of portfolio with Gold regardless of whether it is tax free or taxable.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by KlangFool »

Anon9001 wrote: Mon Jan 06, 2020 12:32 pm
KlangFool wrote: Mon Jan 06, 2020 12:29 pm OP,

You should buy gold instead.

KlangFool
I already own it. For a investor I would not recommend exceeding 25% of portfolio with Gold regardless of whether it is tax free or taxable.
Anon9001,

You are in India. I would trust gold much more than the currency.

KlangFool
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

KlangFool wrote: Mon Jan 06, 2020 12:39 pm
Anon9001 wrote: Mon Jan 06, 2020 12:32 pm
KlangFool wrote: Mon Jan 06, 2020 12:29 pm OP,

You should buy gold instead.

KlangFool
I already own it. For a investor I would not recommend exceeding 25% of portfolio with Gold regardless of whether it is tax free or taxable.
Anon9001,

You are in India. I would trust gold much more than the currency.

KlangFool
To be fair it depends on the reserve bank's attitude towards inflation. They did not really target fighting inflation until 2013. Now the interest rates are very high because they fear inflation will shoot up.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by KlangFool »

Anon9001 wrote: Mon Jan 06, 2020 12:44 pm
KlangFool wrote: Mon Jan 06, 2020 12:39 pm
Anon9001 wrote: Mon Jan 06, 2020 12:32 pm
KlangFool wrote: Mon Jan 06, 2020 12:29 pm OP,

You should buy gold instead.

KlangFool
I already own it. For a investor I would not recommend exceeding 25% of portfolio with Gold regardless of whether it is tax free or taxable.
Anon9001,

You are in India. I would trust gold much more than the currency.

KlangFool
To be fair it depends on the reserve bank's attitude towards inflation. They did not really target fighting inflation until 2013. Now the interest rates are very high because they fear inflation will shoot up.
Anon9001,

Good luck!

KlangFool
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

KlangFool wrote: Mon Jan 06, 2020 12:49 pm
Anon9001 wrote: Mon Jan 06, 2020 12:44 pm
KlangFool wrote: Mon Jan 06, 2020 12:39 pm
Anon9001 wrote: Mon Jan 06, 2020 12:32 pm
KlangFool wrote: Mon Jan 06, 2020 12:29 pm OP,

You should buy gold instead.

KlangFool
I already own it. For a investor I would not recommend exceeding 25% of portfolio with Gold regardless of whether it is tax free or taxable.
Anon9001,

You are in India. I would trust gold much more than the currency.

KlangFool
To be fair it depends on the reserve bank's attitude towards inflation. They did not really target fighting inflation until 2013. Now the interest rates are very high because they fear inflation will shoot up.
Anon9001,

Good luck!

KlangFool
Thanks I don't Rupee is in danger of hyper-inflation as long as BJP is in control. The government has been very good in regards to inflation especially when compared to its predecessor.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by KlangFool »

Anon9001 wrote: Mon Jan 06, 2020 12:50 pm
KlangFool wrote: Mon Jan 06, 2020 12:49 pm
Anon9001 wrote: Mon Jan 06, 2020 12:44 pm
KlangFool wrote: Mon Jan 06, 2020 12:39 pm
Anon9001 wrote: Mon Jan 06, 2020 12:32 pm
I already own it. For a investor I would not recommend exceeding 25% of portfolio with Gold regardless of whether it is tax free or taxable.
Anon9001,

You are in India. I would trust gold much more than the currency.

KlangFool
To be fair it depends on the reserve bank's attitude towards inflation. They did not really target fighting inflation until 2013. Now the interest rates are very high because they fear inflation will shoot up.
Anon9001,

Good luck!

KlangFool
Thanks I don't Rupee is in danger of hyper-inflation as long as BJP is in control. The government has been very good in regards to inflation especially when compared to its predecessor.
https://www.reuters.com/article/india-s ... SL4N2882F7

As far as I can tell, India is heading towards a financial crisis.

KlangFool
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

KlangFool wrote: Mon Jan 06, 2020 12:53 pm
Anon9001 wrote: Mon Jan 06, 2020 12:50 pm
KlangFool wrote: Mon Jan 06, 2020 12:49 pm
Anon9001 wrote: Mon Jan 06, 2020 12:44 pm
KlangFool wrote: Mon Jan 06, 2020 12:39 pm

Anon9001,

You are in India. I would trust gold much more than the currency.

KlangFool
To be fair it depends on the reserve bank's attitude towards inflation. They did not really target fighting inflation until 2013. Now the interest rates are very high because they fear inflation will shoot up.
Anon9001,

Good luck!

KlangFool
Thanks I don't Rupee is in danger of hyper-inflation as long as BJP is in control. The government has been very good in regards to inflation especially when compared to its predecessor.
https://www.reuters.com/article/india-s ... SL4N2882F7

As far as I can tell, India is heading towards a financial crisis.

KlangFool
Financial sector is in crisis yes. I under-weight that sector considerably in my portfolio. I also exclude corporate bonds so I am safe as long as Government does not default on it's debt. I consider that unlikely. Indian Government has Investment Grade rating by credit rating agencies. Also they can print the currency to pay off the debt unlike euro countries like Italy.
Angst
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Angst »

Anon9001 wrote: Mon Jan 06, 2020 12:26 pm
Angst wrote: Mon Jan 06, 2020 12:19 pm Doesn't India's Reserve bank sell inflation linked bonds? They might interest me if I were you. My perspective is colored by my living in the US and my thinking of underdeveloped nations going hand in hand with a greater risk of inflation, vs. developed markets. But as such, taking advantage of your country's relatively high interest rates while insulating yourself from inflation risk sounds appealing. Particularly from a standpoint of taking one's risk on the equity side, and possibly allowing oneself to increase the equity percentage in their portfolio by holding very safe long-term inflation protected bonds.
They do but they are unattractive. Last I checked you have to lock-in your money for 10 years (no pre-mature redemption allowed) and the interest is taxable defeating the purpose of calling it inflation indexed bonds because if you pay tax on the interest it is not going to beat inflation. Sovereign Gold Bonds is much more attractive at no capital gains tax but interest is still taxable. They also have lower lock-in of 4 years. I bought a large quantity of them five days ago.

https://www.capitalmind.in/2013/12/infl ... tax-slabs/
That's interesting. They're a lot like our Series I US Govt Savings Bonds: Non-negotiable, interest accrues and there's a lock-in period. The link you sent me (which is very helpful but old) mentioned just a 3-yr lockout, I believe... but things change, no matter. I personally hold most of my fixed income in non-taxed retirement accounts, and our I Bonds are tax deferred. I hold TIPS (which are not tax deferred and are negotiable) in retirement accounts too. For perspective, our I Bonds which can be held from just 1 year up to 30 years currently pay 0.2% real, and 10 year TIPS pay less than that. Today one has to go out to 30 year TIPS to get something like 0.5% real!

If you could only shelter your inflation indexed bonds from taxes, at least until redemption... Well, if you're really confident that nominal rates are not going to rise significantly, maybe this is your "steal of the century". But if financial issues push the IRB to raise rates further, this might become a big mistake. Time will eventually tell. :wink: :)
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

Angst wrote: Mon Jan 06, 2020 1:14 pm That's interesting. They're a lot like our Series I US Govt Savings Bonds: Non-negotiable, interest accrues and there's a lock-in period. The link you sent me (which is very helpful but old) mentioned just a 3-yr lockout, I believe... but things change, no matter. I personally hold most of my fixed income in non-taxed retirement accounts, and our I Bonds are tax deferred. I hold TIPS (which are not tax deferred and are negotiable) in retirement accounts too. For perspective, our I Bonds which can be held from just 1 year up to 30 years currently pay 0.2% real, and 10 year TIPS pay less than that. Today one has to go out to 30 year TIPS to get something like 0.5% real!

If you could only shelter your inflation indexed bonds from taxes, at least until redemption... Well, if you're really confident that nominal rates are not going to rise significantly, maybe this is your "steal of the century". But if financial issues push the IRB to raise rates further, this might become a big mistake. Time will eventually tell. :wink: :)
There is a penalty for doing that they cut the interest payment by half. The interest itself is taxable so it is a double whammy if you don't hold to 10 years. The design of these inflation indexed bonds seem like complete junk :oops:
Last edited by Anon9001 on Mon Jan 06, 2020 1:39 pm, edited 1 time in total.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

Angst wrote: Mon Jan 06, 2020 1:14 pm That's interesting. They're a lot like our Series I US Govt Savings Bonds: Non-negotiable, interest accrues and there's a lock-in period. The link you sent me (which is very helpful but old) mentioned just a 3-yr lockout, I believe... but things change, no matter. I personally hold most of my fixed income in non-taxed retirement accounts, and our I Bonds are tax deferred. I hold TIPS (which are not tax deferred and are negotiable) in retirement accounts too. For perspective, our I Bonds which can be held from just 1 year up to 30 years currently pay 0.2% real, and 10 year TIPS pay less than that. Today one has to go out to 30 year TIPS to get something like 0.5% real!

If you could only shelter your inflation indexed bonds from taxes, at least until redemption... Well, if you're really confident that nominal rates are not going to rise significantly, maybe this is your "steal of the century". But if financial issues push the IRB to raise rates further, this might become a big mistake. Time will eventually tell. :wink: :)
Our retirement accounts are not that good. Their expense ratios are nice at 0.005 percent. Lower than even Vanguard. The issue is they hire active fund managers and ask them to do active management for that tiny fee. They end up being lazy and picking junk stocks and under-performing the index severely. No inflation indexed bonds are there. I would only use the account for debt instruments as the fund managers can't mess up there. There is EPF which is much better but is restricted to debt instruments with only 15% being invested in equity. It is tax free interest at 8.65% annually. The inflation rate is normally 6%.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Angst »

Anon9001 wrote: Mon Jan 06, 2020 1:34 pm
Angst wrote: Mon Jan 06, 2020 1:14 pm That's interesting. They're a lot like our Series I US Govt Savings Bonds: Non-negotiable, interest accrues and there's a lock-in period. The link you sent me (which is very helpful but old) mentioned just a 3-yr lockout, I believe... but things change, no matter. I personally hold most of my fixed income in non-taxed retirement accounts, and our I Bonds are tax deferred. I hold TIPS (which are not tax deferred and are negotiable) in retirement accounts too. For perspective, our I Bonds which can be held from just 1 year up to 30 years currently pay 0.2% real, and 10 year TIPS pay less than that. Today one has to go out to 30 year TIPS to get something like 0.5% real!

If you could only shelter your inflation indexed bonds from taxes, at least until redemption... Well, if you're really confident that nominal rates are not going to rise significantly, maybe this is your "steal of the century". But if financial issues push the IRB to raise rates further, this might become a big mistake. Time will eventually tell. :wink: :)
Our retirement accounts are not that good. Their expense ratios are nice at 0.005 percent. Lower than even Vanguard. The issue is they hire active fund managers and ask them to do active management for that tiny fee. They end up being lazy and picking junk stocks and under-performing the index severely. No inflation indexed bonds are there. I would only use the account for debt instruments as the fund managers can't mess up there. There is EPF which is much better but is restricted to debt instruments with only 15% being invested in equity. It is tax free interest at 8.65% annually. The inflation rate is normally 6%.
That's interesting. Contact your... government representative?! Things change, eventually. Btw, I got curious and read a bit more. Your early withdrawal 50% penalty is only on the most recent interest payment, not the entirety of accumulated and compounding interest payments. That's a big difference from what I thought you were saying and doesn't sound that bad at all for the option of exiting early, anytime after 3 years. Page 8 of this doc: https://rbidocs.rbi.org.in/rdocs/Forms/ ... 1213AF.pdf
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

Angst wrote: Mon Jan 06, 2020 1:58 pm
Anon9001 wrote: Mon Jan 06, 2020 1:34 pm
Angst wrote: Mon Jan 06, 2020 1:14 pm That's interesting. They're a lot like our Series I US Govt Savings Bonds: Non-negotiable, interest accrues and there's a lock-in period. The link you sent me (which is very helpful but old) mentioned just a 3-yr lockout, I believe... but things change, no matter. I personally hold most of my fixed income in non-taxed retirement accounts, and our I Bonds are tax deferred. I hold TIPS (which are not tax deferred and are negotiable) in retirement accounts too. For perspective, our I Bonds which can be held from just 1 year up to 30 years currently pay 0.2% real, and 10 year TIPS pay less than that. Today one has to go out to 30 year TIPS to get something like 0.5% real!

If you could only shelter your inflation indexed bonds from taxes, at least until redemption... Well, if you're really confident that nominal rates are not going to rise significantly, maybe this is your "steal of the century". But if financial issues push the IRB to raise rates further, this might become a big mistake. Time will eventually tell. :wink: :)
Our retirement accounts are not that good. Their expense ratios are nice at 0.005 percent. Lower than even Vanguard. The issue is they hire active fund managers and ask them to do active management for that tiny fee. They end up being lazy and picking junk stocks and under-performing the index severely. No inflation indexed bonds are there. I would only use the account for debt instruments as the fund managers can't mess up there. There is EPF which is much better but is restricted to debt instruments with only 15% being invested in equity. It is tax free interest at 8.65% annually. The inflation rate is normally 6%.
That's interesting. Contact your... government representative?! Things change, eventually. Btw, I got curious and read a bit more. Your early withdrawal 50% penalty is only on the most recent interest payment, not the entirety of accumulated and compounding interest payments. That's a big difference from what I thought you were saying and doesn't sound that bad at all for the option of exiting early, anytime after 3 years. Page 8 of this doc: https://rbidocs.rbi.org.in/rdocs/Forms/ ... 1213AF.pdf
Oh I just read the capitalmind article. Still The big big issue is that it is taxable. I would not call it inflation indexed bonds if it is taxable. The real return would be below inflation.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by CarpeDiem22 »

Angst wrote: Mon Jan 06, 2020 1:58 pm That's interesting. Contact your... government representative?! Things change, eventually. Btw, I got curious and read a bit more. Your early withdrawal 50% penalty is only on the most recent interest payment, not the entirety of accumulated and compounding interest payments. That's a big difference from what I thought you were saying and doesn't sound that bad at all for the option of exiting early, anytime after 3 years. Page 8 of this doc: https://rbidocs.rbi.org.in/rdocs/Forms/ ... 1213AF.pdf
The actual issue is low real return (1.5% per year in INR) from these inflation-linked bonds. Post tax, this becomes 1.2% real return. I bought some in Dec 2013 when inflation was 11% and then it went down as low as 2%. My nominal XIRR for first 5 years is 5.8% in INR.

More info: https://m.rbi.org.in/Scripts/FAQView.aspx?Id=99
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Angst »

CarpeDiem22 wrote: Thu Jan 09, 2020 6:06 am
Angst wrote: Mon Jan 06, 2020 1:58 pm That's interesting. Contact your... government representative?! Things change, eventually. Btw, I got curious and read a bit more. Your early withdrawal 50% penalty is only on the most recent interest payment, not the entirety of accumulated and compounding interest payments. That's a big difference from what I thought you were saying and doesn't sound that bad at all for the option of exiting early, anytime after 3 years. Page 8 of this doc: https://rbidocs.rbi.org.in/rdocs/Forms/ ... 1213AF.pdf
The actual issue is low real return (1.5% per year in INR) from these inflation-linked bonds. Post tax, this becomes 1.2% real return. I bought some in Dec 2013 when inflation was 11% and then it went down as low as 2%. My nominal XIRR for first 5 years is 5.8% in INR.

More info: https://m.rbi.org.in/Scripts/FAQView.aspx?Id=99
Good point. But perhaps an even more important issue is defining what one's specifically looking for in making this particular investment, and therefor how to define what a "low real return" really is, given that context. 1.2% real return post tax is roughly 2.5 times the "low real return" someone in the US will get purchasing 30 year TIPS right now, and on top of that, the TIPS rate is still pre-tax.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by CarpeDiem22 »

Angst wrote: Thu Jan 09, 2020 3:29 pm Good point. But perhaps an even more important issue is defining what one's specifically looking for in making this particular investment, and therefor how to define what a "low real return" really is, given that context. 1.2% real return post tax is roughly 2.5 times the "low real return" someone in the US will get purchasing 30 year TIPS right now, and on top of that, the TIPS rate is still pre-tax.
What makes this real return low, is that there is completely tax-free government-guaranteed retirement fund called EPF that provides a nominal return of 8.5% currently (inflation is at around 5.5% right now), so real return post-tax is 3.1%. There are also other tax-free govt-guaranteed instruments that provide higher than 1.2% real return.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Angst »

CarpeDiem22 wrote: Fri Jan 10, 2020 6:23 am
Angst wrote: Thu Jan 09, 2020 3:29 pm Good point. But perhaps an even more important issue is defining what one's specifically looking for in making this particular investment, and therefor how to define what a "low real return" really is, given that context. 1.2% real return post tax is roughly 2.5 times the "low real return" someone in the US will get purchasing 30 year TIPS right now, and on top of that, the TIPS rate is still pre-tax.
What makes this real return low, is that there is completely tax-free government-guaranteed retirement fund called EPF that provides a nominal return of 8.5% currently (inflation is at around 5.5% right now), so real return post-tax is 3.1%. There are also other tax-free govt-guaranteed instruments that provide higher than 1.2% real return.
I see your point. My caveat is simply about the guarantee that one gets with their fixed income. I don't personally look to fixed income for it's return potential but for its return guarantee. Implied future real returns without a guarantee for that real return is speculation. Guaranteed nominal and guaranteed real returns are one thing, but the possibility of the current real return (net of nominal and inflation) continuing into the future is not guaranteed, not unless it happens to get baked into a new issue guaranteed real bond. The OP exclaimed "Yes even when adjusted for inflation." Locking in that differential, i.e. getting a real rate guarantee, would be my desire. Exclaiming over nominal rates for their implied future real return is an expression of confidence; I'm fearful of the potential for inflation wiping out my nominal returns.
Last edited by Angst on Sat Jan 11, 2020 7:29 pm, edited 1 time in total.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by whodidntante »

Your intractable home country bias puts you in good company. There are many Bogleheads who will only buy American stocks and American bonds, for example. Good luck. I think your plan is perfect. Is that what you wanted to hear?

Load up, back up the truck, etc.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

whodidntante wrote: Sat Jan 11, 2020 7:28 pm Your intractable home country bias puts you in good company. There are many Bogleheads who will only buy American stocks and American bonds, for example. Good luck. I think your plan is perfect. Is that what you wanted to hear?

Load up, back up the truck, etc.
I would cut the sarcasm as I have 45% of my assets not linked to India. It would be 50% but I don't like to over-weight Gold :sharebeer
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Angst »

Anon9001 wrote: Mon Jan 06, 2020 1:13 am My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
Here's another perspective for looking at your question: Consider what US based active Emerging Mrkts bond funds are investing in. (Of course this is decidedly NOT from a local India perspective.) I looked at the holdings for two different active EM bond funds, Vanguard VEGBX and PIMCO PEBIX, and here's what % of total fund assets is held in both sovereign and corporate bonds domiciled in India:

Code: Select all

VEGBX  1.2%
PEBIX  0.559%
Apparently these actively managed Emerging Markets bond funds are not seeing any "steal of [the] century" coming from India anytime soon. Have you looked at what India based International Bond funds are investing in? If local debt is allowed in their strategy and policy, do they see bonds from India as an especially good investment opportunity right now? That might be the place to look, given your perspective.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

Angst wrote: Sun Jan 12, 2020 1:39 pm
Anon9001 wrote: Mon Jan 06, 2020 1:13 am My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
Here's another perspective for looking at your question: Consider what US based active Emerging Mrkts bond funds are investing in. (Of course this is decidedly NOT from a local India perspective.) I looked at the holdings for two different active EM bond funds, Vanguard VEGBX and PIMCO PEBIX, and here's what % of total fund assets is held in both sovereign and corporate bonds domiciled in India:

Code: Select all

VEGBX  1.2%
PEBIX  0.559%
Apparently these actively managed Emerging Markets bond funds are not seeing any "steal of [the] century" coming from India anytime soon. Have you looked at what India based International Bond funds are investing in? If local debt is allowed in their strategy and policy, do they see bonds from India as an especially good investment opportunity right now? That might be the place to look, given your perspective.
FII's have a limit on holding Indian Debt. Also it is very hard to buy and sell Indian Debt if you are a foreigner. This is great for me as I don't have foreigners messing up my country's bonds and they work effectively at neutralising stock market risk unlike other EM bonds. In 2008 Indian Gilt Funds returned 20% while stock markets crashed in my country and abroad.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

Angst wrote: Sun Jan 12, 2020 1:39 pm
Anon9001 wrote: Mon Jan 06, 2020 1:13 am My country's interest rates are highest in World. Yes even when adjusted for inflation. Should I load up on long term bonds? It seems like steal of century.

https://theprint.in/economy/india-pakis ... es/180727/
Here's another perspective for looking at your question: Consider what US based active Emerging Mrkts bond funds are investing in. (Of course this is decidedly NOT from a local India perspective.) I looked at the holdings for two different active EM bond funds, Vanguard VEGBX and PIMCO PEBIX, and here's what % of total fund assets is held in both sovereign and corporate bonds domiciled in India:

Code: Select all

VEGBX  1.2%
PEBIX  0.559%
Apparently these actively managed Emerging Markets bond funds are not seeing any "steal of [the] century" coming from India anytime soon. Have you looked at what India based International Bond funds are investing in? If local debt is allowed in their strategy and policy, do they see bonds from India as an especially good investment opportunity right now? That might be the place to look, given your perspective.
There are no local funds investing in international bonds due to lack of interest by local investors. To be honest I share their concerns as I am citizen of India and government has obligation to pay interest to me if I own their bonds but I am not a citizen of USA,Europe and Japan and they can easily default on their debt obligations to foreigners if times go rough. Foreigners are the easiest bunch to rip-off once a crisis starts.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by watchnerd »

Anon9001 wrote: Sun Jan 12, 2020 2:28 pm To be honest I share their concerns as I am citizen of India and government has obligation to pay interest to me if I own their bonds but I am not a citizen of USA,Europe and Japan and they can easily default on their debt obligations to foreigners if times go rough. Foreigners are the easiest bunch to rip-off once a crisis starts.
I don't know if selective default of sovereign bonds based on the citizenship of the bond holder has ever happened in history.

As far as I know, when Russia defaulted, Russian citizen bondholders weren't spared. Same thing for Mexico's default / bailout.

If this mechanism existed, it should show up in pricing spreads for credit risk, in addition to the usual currency risks.

In other words, citizens of Turkey should be willing to pay more / have a lower spread for local denominated bonds as the bonds would have less credit risk for them, but I've never seen any data showing this.

(Currency risk is a different matter).
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

watchnerd wrote: Sun Jan 12, 2020 3:05 pm
Anon9001 wrote: Sun Jan 12, 2020 2:28 pm To be honest I share their concerns as I am citizen of India and government has obligation to pay interest to me if I own their bonds but I am not a citizen of USA,Europe and Japan and they can easily default on their debt obligations to foreigners if times go rough. Foreigners are the easiest bunch to rip-off once a crisis starts.
I don't know if selective default of sovereign bonds based on the citizenship of the bond holder has ever happened in history.

As far as I know, when Russia defaulted, Russian citizen bondholders weren't spared. Same thing for Mexico's default / bailout.

If this mechanism existed, it should show up in pricing spreads for credit risk, in addition to the usual currency risks.

In other words, citizens of Turkey should be willing to pay more / have a lower spread for local denominated bonds as the bonds would have less credit risk for them, but I've never seen any data showing this.

(Currency risk is a different matter).
I read about Iceland defaulting on their foreign debt obligations. Is this not true?
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by watchnerd »

Anon9001 wrote: Mon Jan 13, 2020 1:02 am
watchnerd wrote: Sun Jan 12, 2020 3:05 pm
Anon9001 wrote: Sun Jan 12, 2020 2:28 pm To be honest I share their concerns as I am citizen of India and government has obligation to pay interest to me if I own their bonds but I am not a citizen of USA,Europe and Japan and they can easily default on their debt obligations to foreigners if times go rough. Foreigners are the easiest bunch to rip-off once a crisis starts.
I don't know if selective default of sovereign bonds based on the citizenship of the bond holder has ever happened in history.

As far as I know, when Russia defaulted, Russian citizen bondholders weren't spared. Same thing for Mexico's default / bailout.

If this mechanism existed, it should show up in pricing spreads for credit risk, in addition to the usual currency risks.

In other words, citizens of Turkey should be willing to pay more / have a lower spread for local denominated bonds as the bonds would have less credit risk for them, but I've never seen any data showing this.

(Currency risk is a different matter).
I read about Iceland defaulting on their foreign debt obligations. Is this not true?

Three Icelandic banks defaulted on their debt.

That wasn't sovereign debt.

And it didn't matter if the bondholders were Icelandic citizens or foreigners. They all ate it.

There were also EU depositors who lost their cash holdings in the banks. The government, to restore faith in the banking system, recapitalized the banks and provided deposit guarantees (like US FDIC) for Icelandic depositors.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

watchnerd wrote: Mon Jan 13, 2020 1:11 am
Anon9001 wrote: Mon Jan 13, 2020 1:02 am
watchnerd wrote: Sun Jan 12, 2020 3:05 pm
Anon9001 wrote: Sun Jan 12, 2020 2:28 pm To be honest I share their concerns as I am citizen of India and government has obligation to pay interest to me if I own their bonds but I am not a citizen of USA,Europe and Japan and they can easily default on their debt obligations to foreigners if times go rough. Foreigners are the easiest bunch to rip-off once a crisis starts.
I don't know if selective default of sovereign bonds based on the citizenship of the bond holder has ever happened in history.

As far as I know, when Russia defaulted, Russian citizen bondholders weren't spared. Same thing for Mexico's default / bailout.

If this mechanism existed, it should show up in pricing spreads for credit risk, in addition to the usual currency risks.

In other words, citizens of Turkey should be willing to pay more / have a lower spread for local denominated bonds as the bonds would have less credit risk for them, but I've never seen any data showing this.

(Currency risk is a different matter).
I read about Iceland defaulting on their foreign debt obligations. Is this not true?

Three Icelandic banks defaulted on their debt.

That wasn't sovereign debt.

And it didn't matter if the bondholders were Icelandic citizens or foreigners. They all ate it.

There were also EU depositors who lost their cash holdings in the banks. The government, to restore faith in the banking system, recapitalized the banks and provided deposit guarantees (like US FDIC) for Icelandic depositors.
Interesting except this event occurred in 2016:viewtopic.php?t=193220

Article has a pay-wall but Iceland essentially told foreign bondholders to take a hike.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by watchnerd »

Anon9001 wrote: Mon Jan 13, 2020 1:14 am

Article has a pay-wall but Iceland essentially told foreign bondholders to take a hike.
Oh, that little thing....that's nothing compared to the banking crisis.

They had them take a haircut. They didn't wipe them out.

It's the same move that emerging market sovereigns do from time to time.

And, again, it's not based upon the citizenship of the bond holder. It's a universal "refinancing" from USD debt to krona.

If you were an Icelandic citizen holding USD denominated debt, it would hit you, too. It just might be less annoying because krona is your local currency.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Valuethinker »

watchnerd wrote: Mon Jan 13, 2020 1:28 am
Anon9001 wrote: Mon Jan 13, 2020 1:14 am

Article has a pay-wall but Iceland essentially told foreign bondholders to take a hike.
Oh, that little thing....that's nothing compared to the banking crisis.

They had them take a haircut. They didn't wipe them out.

It's the same move that emerging market sovereigns do from time to time.

And, again, it's not based upon the citizenship of the bond holder. It's a universal "refinancing" from USD debt to krona.

If you were an Icelandic citizen holding USD denominated debt, it would hit you, too. It just might be less annoying because krona is your local currency.
LTCM was wiped out by a selective Russian default in 1998.

That had been impossible on their models.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by CarpeDiem22 »

Angst wrote: Sat Jan 11, 2020 7:16 pm I see your point. My caveat is simply about the guarantee that one gets with their fixed income. I don't personally look to fixed income for it's return potential but for its return guarantee. Implied future real returns without a guarantee for that real return is speculation. Guaranteed nominal and guaranteed real returns are one thing, but the possibility of the current real return (net of nominal and inflation) continuing into the future is not guaranteed, not unless it happens to get baked into a new issue guaranteed real bond. The OP exclaimed "Yes even when adjusted for inflation." Locking in that differential, i.e. getting a real rate guarantee, would be my desire. Exclaiming over nominal rates for their implied future real return is an expression of confidence; I'm fearful of the potential for inflation wiping out my nominal returns.
Thanks for the perspective: guaranteed future real returns are good for sure. Lowering EPF interest is a politically-sensitive move as it affects millions in the lower-middle class , so it is not that easy to do, but certainly possible. These inflation-linked bonds did not work out well for me in the past 5 years, but that is only because central bank was doing a good job at keeping inflation low.
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by CarpeDiem22 »

CarpeDiem22 wrote: Mon Jan 13, 2020 4:30 am
Angst wrote: Sat Jan 11, 2020 7:16 pm I see your point. My caveat is simply about the guarantee that one gets with their fixed income. I don't personally look to fixed income for it's return potential but for its return guarantee. Implied future real returns without a guarantee for that real return is speculation. Guaranteed nominal and guaranteed real returns are one thing, but the possibility of the current real return (net of nominal and inflation) continuing into the future is not guaranteed, not unless it happens to get baked into a new issue guaranteed real bond. The OP exclaimed "Yes even when adjusted for inflation." Locking in that differential, i.e. getting a real rate guarantee, would be my desire. Exclaiming over nominal rates for their implied future real return is an expression of confidence; I'm fearful of the potential for inflation wiping out my nominal returns.
Thanks for the perspective: guaranteed future real returns are good for sure. Lowering EPF interest is a politically-sensitive move as it affects millions in the lower-middle class , so it is not that easy to do, but certainly possible. These inflation-linked bonds did not work out well for me in the past 5 years, but that is only because central bank was doing a good job at keeping inflation low.
And, as if just to reinforce your point, the data for Dec India inflation just came out. It stands at 7.4%, compared to 5.5% the month before.
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watchnerd
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by watchnerd »

Valuethinker wrote: Mon Jan 13, 2020 3:15 am

LTCM was wiped out by a selective Russian default in 1998.

That had been impossible on their models.
There is no debate that emerging market debt is dangerous.

The question, based on a hypothesis by the OP, is if sovereign defaults have ever shafted bondholders based on their citizenship, as opposed to what currency the bond was in.

I haven't seen citizenship-based default rules.

I'm not saying it couldn't happen, but I'm not aware of any.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP
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Anon9001
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Anon9001 »

Sorry for the late update to this but Yep it worked out. 12% returns YTD. It never gone negative during this year:https://www.google.com/search?ei=hlItX4 ... ent=psy-ab

Impressive for a country with BBB sovereign rating. Glad I was invested in them as a part of Permanent Portfolio with tweaks (40% Equities instead of 25% and 15% Cash,20% Long Term Bonds).
Angst
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Re: Negative Interest Rates. Load up on Long Term Bonds?

Post by Angst »

Congrats on the good results, so far!
Watch that inflation though, of course:

Image

https://tradingeconomics.com/india/inflation-cpi
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