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PostPosted: Sun Nov 03, 2019 12:49 am 

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User avatarVonSeine
Drakar Chamber of Commerce
The bond market is supposed to provide capital for those who require it and interest for those who have spare to lend.

Let's first get familiar with the terms :

Bonds are 21 days long.
The SIR is the base daily rate which is determined by the amount of money borrowed and loaned.
The spread is a fixed rate taken by the system (the Bank). It is fixed at 0.250% daily. A borrower will pay the SIR + SPREAD while a loaner will receive the SIR - SPREAD
The transaction fee is a one-way fee billed for buying a bond or emitting one (both the borrower and the loaner pays the fee). It is fixed by the system at 10,000 by 1,000,000 (1%)



Let's then take a dive into the bond market from both perspectives using the current SIR (which has been the same for years: 0.300%

For the borrower :

On 1 million borrowed (yes, I know, the system uses zero-coupon bonds which work with discounted present value but the interest calculation is still valid and rounding up to 1 million makes it easier to understand)

-The borrower will pay a 10,000β fee 1%
-We will presume an AAA+ rated borrower with a 0% additional rate of interest.
-He will pay a 0.300% interest plus a 0.250% spread : 0.550% daily interest

Using daily compounding, an AAA+ rated borrower will pay 12% interest on a 21 day period.
That is pretty high. Most players of considerable size are not getting 12% growth on their assets in a 21 days period. Aren't they then incentivized to lend and thus driving the rate down?

Let's look at the lenders :

The SIR is at 0.300%
After subtracting the Bank Spread of 0.250%, the loaners gets a 0.050% daily return : a tenth of the rate the borrower pays!
But we are not done yet…
After taking into account the transaction fee which is charged at the bond's purchase, we are getting a meer 0,04% bond return over 12 days while a perfectly rated borrower is paying 12 %!
No wonder, why, with a 0,04% rate of return over 21 days, the loaners don't make up more loans driving down the rate. If it wasn't for those 10,000 of transaction fees, the SIR would even be equal to spread.



As you can see, most of the interest is held up by the bank which keeps rates high but lending profits low at the expense of both the loaner and the borrower.

Furthermore, the amount of transaction fees billed being more than 3 times the amount of the SIR, the market has been insanely inactive with almost no movement in the SIR regardless of ever-changing economic climate and borrowing needs.


My recommendations to the admins :


Lower the spread to allow smaller players to finance their expansions at a fair rate and better challenge bigger players


Lower or abolish the transaction fee which sits today at 1% to bring crucially needed activity, movement and maybe volatility to the bond market which could even be allowed to react to the economy and borrowing need again


To consider :

Raise the borrowing limit which is ridiculously low





Note: Although Simunomics uses a continuous compounding system, daily compounding has been used for every calculation for the sake of simplicity which should be close enough but keep in mind that the borrower pays a bit more and the loaner gets a bit more than what is calculated here.


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PostPosted: Sun Nov 03, 2019 1:40 am 

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User avatarHatuey Enterprise
 
You are 100% correct.

I would love to see a functional bond system. Specially now that we have system based building prices.

Private lending and actual player owned banks could carry these liabilities instead of the system based Bonds. The investments can be based on mortgages for the investors. The bank spread kills any profi to make it a reasonable investment.

It would be fixed somewhat if player owned banks could sponsor those bonds and capture that bank spread as profit. It is a minuscule amount but could make this system functional at least. The demand for loans or supply of investments could then be tied to available banks to offer fluctuating rates. The system bank can work like allmart to back up player companies if needed to prevent sky high rates.

Also, player owned banks should be able to loan a little more for this to work. Player owned banks should be able to loan out up to 80% of the banks system minimum price.

Maybe these ideas can be polished better with more input from others and preferably devs opinions on the matter.

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PostPosted: Mon Nov 04, 2019 11:42 pm 
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Increasing the borrowing limit is probably a no-go. They are debenture and the potential for someone to borrow, do weird stuff, and bug off will always be there. Especially since they sit on top of mortages which lay claim to the assets.

(There might be something to be said about bonds backed by the ability to claim stock, but the whole stock system is already taking long enough that I'm not anxious to layer more complications on at this time.)

Lowering the spread and the fee I can consider. I'm not too concerned about what lenders make, given that it's passive income. But the point you make from the borrower's standpoint is rather compelling. If we reduce that and then borrowing increases enough to nudge rates up, then there's more profit to be had.

Another possibility is increasing the duration. That would lower the effective cut of the fee while still taking the same bite out of anyone attempting to churn. As I recall we expected rates closer to 0.15-0.20% (and did get it for a while early on) so we went with 21 days so that borrowers were getting a reasonable chunk of money. If the rate is 0.03% then 28 days isn't too much decay.

Not a big change to do. Let me check some math and look at the usage statistics and I should have something up within a day or two.


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PostPosted: Tue Nov 05, 2019 12:34 am 

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User avatarRoyal
 
Amarsir wrote:
Increasing the borrowing limit is probably a no-go. They are debenture and the potential for someone to borrow, do weird stuff, and bug off will always be there. Especially since they sit on top of mortages which lay claim to the asset..


Doesn't the system have the ability to foreclose ? (sell on auction or to system if no buyers interested) to cover the liability that stands at only 80% of building value?

A bank could lend more, as in to cover more loans (separate buildings) . As long as there's cash on hand to cover loans, could it be considered? Some buildings are so large that a bank couldn't cover 20% of it's value even if the bank was as big as said buildings.


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PostPosted: Wed Nov 06, 2019 6:04 pm 

Joined: Oct 27, 2019
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User avatarVonSeine
Drakar Chamber of Commerce
Thanks for your quick answer Amarsir.

As you've said you are not too concerned about what lenders make, given that it's passive income so I would avoid increasing the duration as that would further shift the power from borrowers to lenders. Indeed, the upside for the lender caused by an increased borrowing duration is way bigger than the borrower's upside.

Indeed, an increased borrowing duration requires less action from the lender, allowing his capital to earn passive income for longer. Furthermore, a longer borrowing period further compounds the interest to pay (which also decreases the borrowing limit) and is frankly not needed as 21 days is more than enough especially when a smart borrower will leave some borrow space to refinance and keep some liquid assets ready to pay back the debt by selling them or taking up a mortgage. Furthermore, the outdated fees are I believe the number one reason for high rates and by far and way in front of whatever effect uncompelling duration times may have.

If anything, I would lower the borrowing duration to incentivise cautious borrowing and smart investment, especially given the bond market flexibility (ability to take on more loans with the newly gained value and capacity to pay back a loan at any time).

One suggestion, if its not too much trouble, why not simply abolish the β10,000 fee (at least for now) which simply doesn't make sense and set the spread as a small percentage of the SIR at the time of the transaction. It would be a realistic, dynamic and very efficient solution (presuming that the high fees are not a very essential way of taking money "out of the system").

One last question. Once money has been loaned for more than 21 days, does it goes back automatically to the player's account or does it keeps compounding until money is taken out ? I have been told that some players that have not logged in for years have money invested in bounds which keeps compounding and distort the market which may be the reason why such a massive amont of money is loaned through the pool (deduced from the amont of money needed to move the SIR by an infinitesimal amont what I assume is a very low demand for bonds (due to high rates).

_____

Regarding your question Amarsir, I do not think the system has the ability to do anything on a late bond payment other than preventing you from building anything until the debt is paid. It is pretty different from the mortgage market.


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PostPosted: Wed Nov 06, 2019 10:30 pm 

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User avatarHatuey Enterprise
 
I know for a fact money doesn't accumulate interest beyong 21 days in the bond market (unless it has been changed from how it worked 4 years ago. )

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PostPosted: Sat Nov 09, 2019 10:59 pm 

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User avatarVonSeine
Drakar Chamber of Commerce
Thanks for lowering the spread and the fee. I still think 5,000 is too much for a fee that should be 0 to allow a bit of volatility but thanks anyway.


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PostPosted: Thu Nov 14, 2019 11:20 pm 

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User avatarHatuey Enterprise
 
I just tested investing in bonds. The maximum return I can hope for a 1 trillion investment is just 2 billion. Come on, it shouldn't be less than 10 billion....

Image

Can we please have this fixed? How was this fixed from the previous comment? The spread was reduced, but the earnings remained minimal? What was accomplished?

If we're going to have such unusual low yielding bonds, can they at least pump up city growth or something? What incentive is there for using the bond market?

Global RATES for BOND YIELDS
https://www.investing.com/rates-bonds/world-government-bonds?maturity_from=10&maturity_to=140
Most countries on the plant have at least .3% yield... and higher!

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PostPosted: Thu Nov 14, 2019 11:33 pm 

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User avatarVonSeine
Drakar Chamber of Commerce
Hatuey, I do agree that something is to be done but not for the same reasons. I am thinking for the borrower here.

The ß5,000 does not make sense and needs to go. This will make the borrower happy as they will borrow at an affordable cost (i doubt anyone even borrows at this point) and lenders such as yourself will earn many times as much as they do now, even lending at a lower rate.

The spread is also a shame because it prevents any market dynamic we thrive for but one thing as a time I guess.


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PostPosted: Thu Nov 14, 2019 11:35 pm 

Joined: Mar 25, 2013
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User avatarHatuey Enterprise
 
Amarsir wrote:
Increasing the borrowing limit is probably a no-go. They are debenture and the potential for someone to borrow, do weird stuff, and bug off will always be there. Especially since they sit on top of mortages which lay claim to the assets.

(There might be something to be said about bonds backed by the ability to claim stock, but the whole stock system is already taking long enough that I'm not anxious to layer more complications on at this time.)

Lowering the spread and the fee I can consider. I'm not too concerned about what lenders make, given that it's passive income. But the point you make from the borrower's standpoint is rather compelling. If we reduce that and then borrowing increases enough to nudge rates up, then there's more profit to be had.

Another possibility is increasing the duration. That would lower the effective cut of the fee while still taking the same bite out of anyone attempting to churn. As I recall we expected rates closer to 0.15-0.20% (and did get it for a while early on) so we went with 21 days so that borrowers were getting a reasonable chunk of money. If the rate is 0.03% then 28 days isn't too much decay.

Not a big change to do. Let me check some math and look at the usage statistics and I should have something up within a day or two.


A good chunk of money out of .15% yield on bonds? Even at .20% a player can make more money re-selling from the market than trying to invest and wait 21 days. Borrowers in the bond market aren't wealthy players the majority of the time. These guys are hit the hardest by any fees included on such sales.

Apartments Buildings over 600,000 sq ft struggle to make 40,000,000 a day while a factory or store that size could easily beat that revenue marker. I have a ton of ways to make this a better player experience but won't spam this thread with that. As Pierre said, lets focus on one area at a time.

Banks are so bad in regards to revenue that any player who runs a bank does it at a loss. I'd like to recommend player banks to be the middle man for processing bonds and maybe it will give banks an actual use other than the small mortgage loans that are currently allowed. A bank is more than just a mortgage lender, and this game has the potential to make it interesting.

Currently all bonds are processed through and for the system (meaning fees and such are just vanishing points for money). Where player banks could create a revolving economy specially if bonds are thrown in to make banks useful.

I love the game but it hurts to see these inequalities.

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PostPosted: Fri Nov 15, 2019 12:10 am 

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User avatarVonSeine
Drakar Chamber of Commerce
Although I agree with the spirit, I disagree with the points you make. I'm feeling compeled to post this rebuttal on some points I do not agree with and to advance a proposal.

Quote:
I just tested investing in bonds. The maximum return I can hope for a 1 trillion investment is just 2 billion. Come on, it shouldn't be less than 10 billion....
Can we please have this fixed? How was this fixed from the previous comment? The spread was reduced, but the earnings remained minimal? What was accomplished?
If we're going to have such unusual low yielding bonds…


Although is understand your frustration, I think you misunderstood the fee-update. As AmarSIR pointed out in the quote below, the issue was not the absolute return of lenders but the high cost of borrowing caused by high fees.

Quote:
I'm not too concerned about what lenders make, given that it's passive income.


Furthermore, your comparison to bonds rates worldwide doesn't help your argument as corporations usually pay in the single digit per annum and big countries in the negatives. You also forgot that the SIR is a daily rate. The real-world comparison is really not necessary in a world where you are getting a many free meals.

Regarding your player-owned real bank proposal, it simply will never happen as the devs stated before because of the fraud risks regarding value transfers associated with banking.


The issue that you point to without naming is high fees that, unlike selling fees on the market that serve a purpose in constraining price inflation, are unnecessary and prevent the borrower from getting a low rate and rob the lenders from his profits.

When the devs reduced the spread and transaction cost last week, the cost of borrowing went down 3-fold while lending profits increased dramatically. They need to do it again. For real now.


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PostPosted: Fri Nov 15, 2019 12:33 am 

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Bestbuyever
I'm not sure I would focus on the bond the market. A player who is dumping a ton of cash into bonds (as I do from time to time) isn't really doing anything thus isn't playing the game or putting the time in. I would focus more on the dwindling populations. In Bellerive Allmart has been basically eliminated yet the population falls and falls and falls to the point where a 100K factory can dominate a product. If the populations can't grow then why have so many cities. Abalesk, Bellerive and Drakar are basically useless at this point. At least fixing the population in those cities would give people ways to play than worrying about throwing money on the sidelines for a month and not logging in for a month cause you aren't really anything in the game.


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PostPosted: Fri Nov 15, 2019 6:52 am 
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User avatarAllmart
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With top credit, the effective interest rate on a loan went from 13.52% over 21 days to 5.50% over 21 days. In the context of the returns we know can be achieved through business, that's a really good leverage. And yet, as of right now the total bond market balance is:

Debts
Total of 750,858 bonds totaling β715 billion in value.

Assets
Total of 95,849,810 bonds totaling β95 trillion in value.

As you can see they're not even close. And I don't think it's the numbers. I think it's that buying is easy and borrowing to earn a return is work. So that's why rates are just at the new floor. More borrowers or fewer lenders and the returns would be better.

So if there's any more change to be made to the system, it would be to lower the floor to 0 or even negatives. If companies can lose money by buying bonds I suspect we'd finally get some flux in the rates. Now whether people would really enjoy that, now I don't know.


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PostPosted: Fri Nov 15, 2019 9:16 am 

Joined: Nov 14, 2019
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Z Retail
That I understand completely, but regarding the dismal populations, even in Canjara, can we do something abou that?
At this point we’re even eliminating allmart from the competition, yet population continues to fall, retail spending is average at best, and we can’t get new players to come in because of that!
Could we please work on the population thing, if nothing else?


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