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If I don't pay a debt, then the creditor takes my goods. Why, then, do Greek creditors not take Greece?

In general, there are three kinds of debt: Secured debt, like a mortgage or a repurchase agreement. With a mortgage, for example, the debt is secured by a lien on the home, and if the debtor does not ...
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13 votes
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What would happen if China called in its debt?

You have to understand how international debt works. These are not loans, but bonds. China buys a US bond for, e.g., 98 USD. This bond is a promise by the US Treasury to pay 100 USD one year from now. ...
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8 votes

Why do people buy negative interest rate bonds?

There are several reasons why it makes still sense. Nominal negative return does not mean that real return is negative. There is a difference between nominal interest rates and real interest rates ...
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6 votes
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What is the difference between present value and face value?

Suppose the face value of a bond is $M$ and its interest rate is $\tau$. This means it will pay $\tau \cdot M$ interest every year (other periods are also possible) and at the end of its run (its ...
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6 votes
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Why aren't perpetual bonds more common?

The most famous perpetual bonds are UK Government Bonds known as consols. They weren't issued to avoid the rollover risk you highlight. Rather, their key benefit was liquidity. They could sell new ...
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6 votes

How did Portugal draw down their interest rates on pubic debt?

1.- The government imposed an austerity program and, in exchange, received assistance from the IMF and the EU. 2.- The ECB made it clear that it would do whatever as necessary to save the Euro, even ...
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6 votes
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Why is the inverted yield curve a good predictor of impending economic recession?

There is a fair amount of ambiguity to this question. The first question is: what is the yield curve? A fixed income investor may refer to the yields across all maturities as the yield curve, while ...
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6 votes

Are quantitative easing and helicopter cash really different tactics? And how does QE relate to Modern Monetary Theory?

What is QE: QE is simply an asset purchase by central bank. As explained by Fed St. Louis QE is defined as: large-scale asset purchases—in the hundreds of billions of dollars range—of, for example, ...
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5 votes
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Why does falling global bond yields signal coming deflation?

Bond yields falling from their current near-zero position will place them in negative yield territory. Negative bond yields are deflationary by definition. Paragraph 3, sentence 5 of the article says: ...
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4 votes

Who owns German debt?

This Deutsche Bank figure from 2013 has some broad categories for German debt and compares it with other rich countries: A newer chart, using slightly with more granular categories. Note that Germany ...
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4 votes
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Show that $W_t - \int_0^t \xi_s ds$ is forward-measure-Brownian

(Looking at the question and notation used more closely, the formulation seems to be problematic in couple places.) General Fact Let $W$ be standard Brownian motion with respect to filtration $( \...
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4 votes
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Free Data Source for Credit Spreads?

Yes, there's daily data available on the St. Louis Fed's FRED.
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4 votes

What would happen if China called in its debt?

Also remember that China's holdings of US Treasury's are a manifestation of the fact that they run a current account surplus with the US e.g. they sell more stuff to us than what they buy from us, ...
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4 votes
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Why is national debt bad if the central bank can keep buying bonds?

Yes. The central bank (say the Fed in U.S.) can purchase bonds, but notice: The Fed is not going purchase t-bonds and t-bills directly from the Treasury. It will only purchase or sell bonds in the ...
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  • 316
4 votes

Why is national debt bad if the central bank can keep buying bonds?

This site is aimed to give non-opinion based answers; this question is worded in a way that leads to opinions (“bad”). I will do my best to give a straight answer. I would argue that it is safe to ...
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4 votes
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Why do bonds pay back the entire principal at maturity instead of paying it off gradually?

They just issue new debt to roll over the principal anyway. Unlike individuals, they do not have a fixed life span. Trading amortising bonds in the secondary market is a pain, since you then need to ...
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4 votes
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Why is an inverted yield curve NOT a good predictor for recessions except in the US?

I’m currently researching this topic, and I have not found any single reference that answers this (... besides my work). I will summarise what I have seen. I would point out that from a research ...
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4 votes
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Extraction of Inflation Expectation from bond yields

Yes, the number you give is an approximation. If you wanted to calculate the true economic breakeven, you would need to include the effect of the lag used in the indexation process (which includes ...
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3 votes
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Connection between negative interest rates and negative bond yields

I cannot see the mechanism as to why if central banks set rates in positive territory when long term bonds yields are negative how this will cause the yield curve to invert. No need to seek a ...
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3 votes
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Fannie Mae and Freddie Mac as substitute benchmark bonds

Fannie Mae and Freddie Mac bonds have long been viewed as having an implicit government guarantee, and though they received government support during the crisis, they never missed a payment to ...
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3 votes

Why is the Bank of Japan buying all the government bonds?

Central banks usually buy back government bonds to combat deflation and facilitate economic growth. This policy is commonly called "quantitative easing" or QE. After the arguable success of QE during ...
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3 votes
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Who owns German debt?

This is at the same time 1) a little old and 2) provides a deeper and more general answer that what you might be looking for, but I would still encourage you to go through it. http://www.its.caltech....
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3 votes

What happens to undated government stocks when interest rates dip below the coupon rate?

This is a pretty standard bond pricing issue. The short answer is yes, the market value of the bond can and often will exceed its par value if interest rates are below the coupon rate, just so long as ...
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3 votes

What is the difference between present value and face value?

"And also does this have anything to do with discounting vs. coupon bonds, etc?" It does. Assume a bond without coupons, to be fully re-paid in a single payment. On it ("face value" $\equiv B$) the ...
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3 votes

What is the difference between present value and face value?

Think of it this way: A dollar today is worth more than a dollar tomorrow Why? Because today you can invest it, and have more money tomorrow! How much more money? It depends on the interest rate. ...
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  • 141
3 votes

How did downgrading bonds contribute to Greek crisis?

Here's a non-technical answer: Bonds are a form of debt. What the issuer is selling is essentially a promise to repay the principal (i.e. whatever price the buyer paid) and some interest to the ...
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  • 395
3 votes

Why does China buy so much U.S. Treasury debt?

As was said above, buying debt to affect the exchange rate and make Chinese exports more attractive may be one reason to buy these Treasuries. Surely all of these are not reinvested into buying more ...
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  • 6,409
3 votes
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Could a hike in interest rates cause a country to be unable to pay back it's debt burden?

The short answer is no, rate hikes have no effect whatsoever on whether a government can service its debt and repay maturing issues. Here's why--- A government that issues debt in its own currency ...
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  • 174
3 votes

Why are German bonds used as the reference for the calculation of Eurozone bond spreads?

German bonds placed as a reference in the eurozone is a form of tacit understanding and i don't think you will find official conventions about this. This practice comes from market Finance pricing ...
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