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Buy or Die
A conversation I had with a fund manager in Europe was quite revealing …
This fellow — let’s call him Franz — told me that as European governments rolled out negative-yielding debt, Franz’s fund stopped buying bonds. He preferred to keep more cash on the books rather than buy a bond that would cost him to own it over the next 10, 20 or even 30 years.
That’s when the regulators called. “Why aren’t you buying bonds?” they asked.
“There’s no yield in new bonds,” he replied.
“Part of the mandate of your fund is to own government bonds,” the regulators told him. “Either buy the bonds, or we’ll shut you down.”
So that’s who is buying these bonds. Funds that are forced to buy them … OR ELSE.
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