Title: Negative bond yields - definition and explanation - Economics Help
Headings: Negative bond yields – definition and explanation
Negative bond yields – definition and explanation
Why would people buy negative bonds?
What at the implications of negative bond yields?
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Content: Japan has negative bond yields, but foreign investors may be able to make profit from the rising value of the Yen. The bond itself may lose money, buy if the Yen increases in value compared to the Euro. Euro investors make money from holding Yen – and government bonds are one of the easiest ways of holding foreign assets. See: Yen carry trade
Deflation. If a country experiences deflation (e.g. inflation rate of -1%), then a negative nominal bond yield of -0.04% still can give a real positive return for the investor, because the bond is falling in value at a slower rate than cash reserves because of deflation. What at the implications of negative bond yields? Expectations of low growth / deflation. Usually negative bond yields are an indication that investors expect some form of economic downturn. It is this negative expectation which encourage investors to choose the safety of government bonds rather than commodities or share prices.