Sunday, September 22, 2019

Negative Government Bond Yields- Why?

Recently, I was reading about negative bond yields and how they have swelled to $17 trillion globally. I was quite intrigued by this phenomenon because it essentially means you are paying a premium to park your money in these assets and I did wonder what the rationale behind these acts. Because if you do hold these bonds to maturity, why not just hold cash in a savings account (but some saving accounts are yielding negatively too like Switzerland) or hoard cash under your bed?

As of now, the bulk of negative yields is concentrated in Europe and Japan which means we are talking about currencies such as the euro, yen, swiss franc, krona and etc.

One reason rightfully pointed out for the motivation of buying negative bonds, because the hope that the price of the bonds will appreciate (albeit that means more negative yields coming and probably more than $17 trillion).

Another reason might be cos these assets are safe haven assets, which brings back to the first reason so that the price will rightfully rally in times of economic turmoil.

Personally, I won't be buying these bonds because I think there are better things to buy at this time like Singapore Bonds (especially SSB) but it will be good to hear about insights about why to buy and so.

Are you going to buy a bond with a negative yield?




OCBC Dividend too

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