Name: Why buy negative yielding bonds? FT
Uploaded: 2020-02-27T11:08:47.000Z
Duration: 6 min 24 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

To-infinitive

And I will pay you back £90 in 10 years' time.

It doesn't sound like a good investment at all, does it?

But this type of arrangement has become strangely normal

in the markets, particularly in Japan and Europe.

When companies or governments need to raise money

They're a form of debt that can last over

different periods of time, from a few weeks to several decades.

And unless something goes seriously wrong,

you will get the full amount that you have invested.

The issuers of the bonds will make regular interest payments

to those that hold them over their lifespan.

On top of this, there's an extra component,

this payment - as a proportion of the price

00:01:14,640 --> 00:01:18,570 It's the price of the bond changes so does the yield.

The lower the price goes, the higher the yield rises.

And the higher the price goes, the lower the yield falls.

It means investors are receiving less money than they originally

And what is so topsy turvy in the markets today

is that roughly a fifth of the global bond market

In the last decade or so, developed economies

have suffered from low growth and low inflation.

So to encourage people to spend more money,

central banks have been reducing interest rates

to make individuals like us less motivated to keep money stored

in our bank accounts and instead spend it or put it

now charges other European banks nearly half a per cent interest

Because it wants banks to lend their capital out

into the economy rather than just sitting on the couch.

So far we've been talking about ordinary people

Now let's move on to investors, a particular subset

- investors with loads of money to spend.

If you were one of these investors surveying

the markets right now, this is what you'd see.

And that's happening because investors still

And so they have been buying them, as well as central banks.

The prices are now so high the yields in a number of countries

- such as Austria, Belgium, Denmark, Finland, France,

Germany, Japan, the Netherlands, and Switzerland

So investors are certain to get back less than they

In this topsy turvy world, issuers of debt

are paying cash to these borrowers, companies,

and governments instead of receiving an interest payment.

But despite the strange world for investors, as we said,

Because their returns have been very reliable

Government bonds, in particular, are considered very safe assets

because governments are reliable borrowers.

Of course, bonds are only safe investments

if their rates are positive and above the rate of inflation.

any money, as is happening with bonds with negative yields.

And that has kicked off a very active debate

about whether government bonds should be considered

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Why buy negative yielding bonds? FT

strategy

debate

term

positive