Who is interested in negative yield bonds?



An interesting fact: there are assets for which the investor is forced to pay extra. But they still remain an attractive investment asset. For example, bonds with negative yields. In 2020, bonds of most Eurozone countries rose in price and, accordingly, their yields fell. Since 2015, Switzerland has introduced a negative yield on its debt securities, since 2019 – Germany. In 2020, British, Polish, Italian and Greek securities went into negative territory. Despite the fact that the asset has negative income, the number of investors is only increasing.

Bonds with negative yield as an investment object

Negative returns can be compared, for example, with lending money at negative interest. You lend money and pay interest yourself for the fact that another person uses your money. What’s the logic? A similar practice applies in Europe and in relation to deposits: investors are ready to invest at a loss in banks instead of leaving it “under the pillow”.

Factors affecting the level of demand for bonds with negative yields:

  • Buy cheaper – sell more expensive… Regulators periodically conduct bond buybacks. And if the redemption continues to increase, then the price of bonds will increase with a decrease in yield. Therefore, the role is played not so much by the yield as the price of the bond itself.
  • Distribution of risk… If stock indices fall, bond prices rise. In this case, the price of the bond itself also plays a role.
  • Safety… The risk of bank bankruptcy is higher than the state’s default. Therefore, if we are talking about large amounts, then investments in bonds have lower risks than deposits.
  • Inflation… In the EU, it is now about -0.3%. If the return on securities is in the red, but nevertheless higher than inflation, the investor receives income.
  • Forecasts for currency strengthening… If the security currency strengthens, in a certain scenario the investor will make a profit even at negative rates.

The situation may change if rates on government bonds of developed countries become positive again. But this will not happen anytime soon. Central banks are the fundamental factor influencing bond prices and rates. Policy on quantitative easing (emission of national currency, buyback of securities) has a direct impact. Therefore, to control the situation, you need to follow the releases of the heads and management of the Central Bank.

Analysts warn that not all negative yield government bonds should be considered a defensive asset. For example, the country risk of Spain, Italy and Greece is higher than that of other countries. The risk of default remains here.

Conclusion… Along with traditional investment assets, instruments with negative returns can also be interesting. If the goal of traditional investments is to make a profit, then bonds with negative yields are needed rather to protect money in a period of increased volatility. You can buy them only from banks or on the exchange market. Learn more about fundamental analysis here.

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negative yield bonds

An interesting fact: there are assets for which the investor is forced to pay extra. But they still remain an attractive investment asset. For example, bonds with negative yields. In 2020, bonds of most Eurozone countries rose in price and, accordingly, their yields fell. Since 2015, Switzerland has introduced a negative yield on its debt securities, since 2019 – Germany. In 2020, British, Polish, Italian and Greek securities went into negative territory. Despite the fact that the asset has negative income, the number of investors is only increasing.

Bonds with negative yield as an investment object

Negative returns can be compared, for example, with lending money at negative interest. You lend money and pay interest yourself for the fact that another person uses your money. What’s the logic? A similar practice applies in Europe and in relation to deposits: investors are ready to invest at a loss in banks instead of leaving it “under the pillow”.

Factors affecting the level of demand for bonds with negative yields:

  • Buy cheaper – sell more expensive… Regulators periodically conduct bond buybacks. And if the redemption continues to increase, then the price of bonds will increase with a decrease in yield. Therefore, the role is played not so much by the yield as the price of the bond itself.
  • Distribution of risk… If stock indices fall, bond prices rise. In this case, the price of the bond itself also plays a role.
  • Safety… The risk of bank bankruptcy is higher than the state’s default. Therefore, if we are talking about large amounts, then investments in bonds have lower risks than deposits.
  • Inflation… In the EU, it is now about -0.3%. If the return on securities is in the red, but nevertheless higher than inflation, the investor receives income.
  • Forecasts for currency strengthening… If the security currency strengthens, in a certain scenario the investor will make a profit even at negative rates.

The situation may change if rates on government bonds of developed countries become positive again. But this will not happen anytime soon. Central banks are the fundamental factor influencing bond prices and rates. Policy on quantitative easing (emission of national currency, buyback of securities) has a direct impact. Therefore, to control the situation, you need to follow the releases of the heads and management of the Central Bank.

Analysts warn that not all negative yield government bonds should be considered a defensive asset. For example, the country risk of Spain, Italy and Greece is higher than that of other countries. The risk of default remains here.

Conclusion… Along with traditional investment assets, instruments with negative returns can also be interesting. If the goal of traditional investments is to make a profit, then bonds with negative yields are needed rather to protect money in a period of increased volatility. You can buy them only from banks or on the exchange market. Learn more about fundamental analysis here.

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negative yield bonds

An interesting fact: there are assets for which the investor is forced to pay extra. But they still remain an attractive investment asset. For example, bonds with negative yields. In 2020, bonds of most Eurozone countries rose in price and, accordingly, their yields fell. Since 2015, Switzerland has introduced a negative yield on its debt securities, since 2019 – Germany. In 2020, British, Polish, Italian and Greek securities went into negative territory. Despite the fact that the asset has negative income, the number of investors is only increasing.

Bonds with negative yield as an investment object

Negative returns can be compared, for example, with lending money at negative interest. You lend money and pay interest yourself for the fact that another person uses your money. What’s the logic? A similar practice applies in Europe and in relation to deposits: investors are ready to invest at a loss in banks instead of leaving it “under the pillow”.

Factors affecting the level of demand for bonds with negative yields:

  • Buy cheaper – sell more expensive… Regulators periodically conduct bond buybacks. And if the redemption continues to increase, then the price of bonds will increase with a decrease in yield. Therefore, the role is played not so much by the yield as the price of the bond itself.
  • Distribution of risk… If stock indices fall, bond prices rise. In this case, the price of the bond itself also plays a role.
  • Safety… The risk of bank bankruptcy is higher than the state’s default. Therefore, if we are talking about large amounts, then investments in bonds have lower risks than deposits.
  • Inflation… In the EU, it is now about -0.3%. If the return on securities is in the red, but nevertheless higher than inflation, the investor receives income.
  • Forecasts for currency strengthening… If the security currency strengthens, in a certain scenario the investor will make a profit even at negative rates.

The situation may change if rates on government bonds of developed countries become positive again. But this will not happen anytime soon. Central banks are the fundamental factor influencing bond prices and rates. Policy on quantitative easing (emission of national currency, buyback of securities) has a direct impact. Therefore, to control the situation, you need to follow the releases of the heads and management of the Central Bank.

Analysts warn that not all negative yield government bonds should be considered a defensive asset. For example, the country risk of Spain, Italy and Greece is higher than that of other countries. The risk of default remains here.

Conclusion… Along with traditional investment assets, instruments with negative returns can also be interesting. If the goal of traditional investments is to make a profit, then bonds with negative yields are needed rather to protect money in a period of increased volatility. You can buy them only from banks or on the exchange market. Learn more about fundamental analysis here.




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