Core inflation running in the US at 2,3% - 2 yr yields at 0.679% - Who is nuts in this game?

short cash bonds and hold them to maturity

 

Erm, what are you gonna do with the cash?

 

If the German/Swiss short term interest rates are negative, would the premium on some German equity options be discounted to below intrinsic value, especially those that paid high dividend? If so, isn't it the same as borrowing at negative costs, to a certain extend? I welcome your critics and comments.

Regards,

 

Well, firstly, you don't discount at govt bond-derived rates. Like I mentioned, a rate at which German/Swiss govt can borrow won't apply to a regular mkt participant. Secondly, yes, if you were to find sufficiently long-dated options where their mkt value would be computed using a negative discount rate, there could be some interesting effects. However, much will depend on a variety of other arrangements. It's complicated .

 

The cash received from the short position? I don't know!

 

And that's precisely the problem...

 

I am curious. I don't have access to EU/German/Swiss options market data. Have you looked at them? Especially for long dated options?

Thanks.

 

Not recently... Howvever, my recollection is that there's really nothing especially sexy to do arnd negative rates.