Negative Yield Curves to Infinity and a Reader Question Regarding Fraud


The entire German yield curve is negative for 30 years. Japan is poised to join the club.

Bloomberg reports Japan Lines Up to Join Germany in All-Negative Yield Curve Club.

Yields in the Asian nation are already negative all the way out to debt maturing in 15 years, and buyers from home and abroad have been snapping up longer-tenor Japanese government bonds, adding to the downward pressure.

International investors are profiting by lending dollars for yen via currency forward contracts and plugging the proceeds into JGBs, while domestic players benefit from the slope of the yield curve by borrowing over a short time frame and putting the money into longer maturities where yields are higher.

“Investors are seeking to buy 30- and 40-year bonds while there are positive yields left,” said Tadashi Matsukawa, head of fixed-income at PineBridge Investments Japan Co. “They face the possibility that yields across all maturities will fall into negative territory.”

No Brainer

To Infinity and Beyond

Why stop at 30 years or even 40 years?

Why not offer perpetual bonds with a negative yield?

Negative Yields Fundamentally Impossible

Negative yields are fundamentally impossible in the absence of central bank manipulation or monetary fraud.

That is not an opinion, it is a statement of fact. It is impossible for someone to prefer 89 cents ten years from now to a dollar today.

Yet, I see some people whom I respect attempt to explain the matter.

Deflation Ahead

I agree that deflation is ahead, but I am sorry, that's not a valid excuse to buy negative-yield debt.

Currency Component

One of my readers commented "You are forgetting the currency component."

That statement is in apparent "carry trade" sympathy with Bloomberg's "No Brainer".

Excuse me for pointing out there is no risk-free arbitrage.

Carry trades blow up all the time and the next one will be a doozie. I expect many hedge funds will blow up on these kinds of bets.

Logically Impossible

Let's not equate speculative activity with the fundamental impossibility of someone actually preferring 89 cents ten years from now to a dollar today.

That is precisely what Swiss bond yields imply.

Yet, Rosenberg made the same rationalization as my reader.


Again, note out the difference between safekeeping services and negative interest rates.

One would expect to pay a small nominal storage cost for gold (or cash).

But if one lent gold (or cash), as opposed to placing it in a bank for safekeeping, the yield would never be negative or zero. Never.

That one might choose to speculate in negative yield bets via carry trades or the greater fool's theory does not negate this simple fact: Time preference can never be negative except by central bank manipulation and outright monetary fraud.

Understanding the Point

Question of Fraud

Another reader commented "I don't understand how negative interest rates are fraudulent. The bond issuer is promising to pay fewer dollars upon maturity than the buyer is spending to purchase the bond. There is no fraud."

Of course there is manipulation and fraud.

Once again, Interest rates could never be negative without central bank manipulation.

The ECB engaged in massive QE, printing money out of thin air, forcing banks to take the money, then setting rates negative robbing banks of earnings. That's a huge fundamental mistake and it has backfired already.

If you do not like the word fraud, call it robbery. It is not much different than the playground bully demanding money in return for the right to walk to class unmolested.

Banks have to take the offer. In return, we are now seeing things like banks charging consumers for deposits. Negative interest rates on deposits rob depositors because they are forced upon them.

If something that cannot logically happen, actually happens, look for manipulation and fraud as the obvious explanation.

What's Happening?

  • To create "excess reserves" central banks, via asset purchases, flood banks with dollars (euros or yen) the banks do not even want because banks believe they cannot lend them profitably.
  • In the case of the ECB, the central bank charges the banks interest on the euros crammed down their throats.

Mathematical Certainty

In Europe, the US, Japan, and everywhere, it is a 100% mathematical certainty that someone has to hold every dollar, every euro, every stock, and every bond 100% of the time.

Please read that two or three times until it sinks in.

Someone must hold every security and every dollar. One cannot sell stocks and buy bonds without someone else doing the opposite.

Given there is a seller for every buyer, only the ownership transfers.

Manipulation, Fraud, or Theft?

In this case, the ECB prints euros the banks do not even want, yet someone has to hold the damn things, 100% of the time come hell or high water, no matter what interest rate the ECB sets.

Then the ECB charges the banks interest on the money printed out of thin air while simultaneously setting the short-term rate negative.

This has destroyed Eurozone bank profitably. In contrast, the Fed paid interest rates on excess reserves, slowly bailing them out over time.

Making Sense of It All

One can label these central bank strategies manipulation, theft, or fraud.

Select the term that suits you best.

But that is the correct way of Making Sense of 100-Yr Bonds yielding 0% and 30-Yr Bonds With Negative Yield.

Also, please consider Fed Baby Steps Coming: What's Powell Up To?

My short answer is the Fed wants to avoid the Eurozone negative rate trap.

Mike "Mish" Shedlock

Comments (22)
No. 1-17

And more and more - it will be the taxpayers.

If fundamentals and market forces were allowed to breath again - most asset prices would collapse.

"Someone must hold every security and every dollar. One cannot sell stocks and buy bonds without someone else doing the opposite."


Of course it is fraud, or better said, counterfeiting. Fractional reserve banking is a juggling act (check kiting) which by alternating pendulum swings of inflation and deflation manipulate the price of capital and the value of collateral, always to the disadvantage of the parties that are not part of the prime mover crowd. If you did with property entrusted to you what banks do with money, you would go to jail. If you do what banks do with money, you get prosecuted. Don't believe me? I know baby-sitting co-ops and other such exchanges which introduced their own chips or tokens, and faced prosecution.

The proof is in the pudding. CEO compensation has sky rocketed since the economy was financialized, turning executives into a type of banker, balance sheet jockeys and price share manipulators. Just look at GE or GM. Average compensation of bankers and executives cannot possibly by explained as productive labor -- they are multiples of the gains realized by criminal syndicates and racketeering schemes. Why do you think all these too big to fail banks have all paid billions to buy off felony money laundering, market rigging, and fraud charges? Because the illegal activities are in fact of exactly the same nature as the legalized activity, they cannot really be distinguished.


I think negative yields are the natural consequence of central governments and central banks cooperating to inject new money into their economies.

Central governments go on a spending binge in an attempt to lift their economies and "engage animal spirits," but since they simultaneously crush innovation and competition with ever more rules and regulations and since improvement in productivity does not necessarily keep up with the growth in cost of government, the spending binge does not have the desired effect. Central banks recognize this and want to push even more money into the economy than the superhighway that is government spending. So what do they do? They overpay for the government debt, shoving every ounce of new credit through the government debt channel they possibly can, pushing yields absurdly low and negative. Despite this, they still can not get asset prices and wages to inflate fast enough to compensate for the money being pumped in. (Hmm...could it be that government spending is largely not productive and MMT is a flawed economic theory? Nah, that couldn't be it.)

Unless they are willing to face a credit collapse (they aren't), the next step is Central Banks will identify wider channels to inject more money. I imagine they are eventually going to buy everything like the BOJ. All this will be done in the name of keeping their economies growing, but I fail to see how it differs in the end from theft through counterfeiting.


Perhaps it is better to say that negative yields can only exist in an environment where central banks have committed fraud to manipulate the financial system. However, the negative yield instrument is not, in and of itself, fraudulent. It is merely a symptom of the underlying fraud.


Obama did not at all crack down on bankster fraud, and look at him now.