Lending To Lose: Who Buys Negatively Yielding Bonds And What It Means For Investors
24 Pages Posted: 27 Dec 2019
Date Written: December 1, 2019
I discuss the demand and supply of negatively yielding bonds, which is a recent and relatively unprecedented phenomenon in financial markets. To understand why one would lend to lose, I classify buyers into three categories, i.e. “forced buyers”, “speculators” and “non-financial government entities”. I conclude that the demand for bonds that are guaranteed to lose money can locally be justified by a variety of rational reasons. However, while locally rational, this conclusion raises important questions about global financial stability. Do negative yields mean that the bond market is distorted due to demand and supply mismatch, and if so what are the consequences if there are unforeseen macro-economic shocks?
Keywords: Negative Yielding Bonds, Index Funds, Pension funds, Risk Management, Hedging, Central Banks
JEL Classification: G13
Suggested Citation: Suggested Citation