InvestorQ : What is this negative yield bonds that we get to hear about and what are these negative yield bonds?
Riya Dwivedi made post

What is this negative yield bonds that we get to hear about and what are these negative yield bonds?

Answer
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rhea Babu answered.
1 year ago


As the name suggests, the negative yield bonds are the bonds that pay you negative interest. That basically means you pay the issuer or the government for investing in their bonds. That sounds fairly ridiculous right; but that is what it is. There are a number of countries in the world like Japan, Germany, Switzerland, Norway and Sweden which offer negative yields. Here yields have gone really low and their currencies are considered to be safe havens. So there is a lot of money that flows into these currencies in times of economic risk even if it means very low rates of returns.

Currently, there are about $17 trillion of negative yield bonds in the market and that is huge. That is nearly 6 times the GDP of India. That much value of bonds is charging you for investing in them. What is interesting is that these negative yields are also related to the inversion of the yield curve and that is why it is important to understand. What the inverted yield curve may be reflecting at this point of time is a weird anomaly with respect to negative yield bonds. This time around, negative yield has become a central bank strategy. That is because central banks find that negative yields are the best defence against being drawn into a currency war. When yields are negative, flows will be limited and currencies cannot strengthen. So, any currency war will be ineffective to begin with. You will have to keep an eye on how this pans out.