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

Abstract

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

Bhansali, Vineer, Lending To Lose: Who Buys Negatively Yielding Bonds And What It Means For Investors (December 1, 2019). Available at SSRN: https://ssrn.com/abstract=3499331 or http://dx.doi.org/10.2139/ssrn.3499331

Vineer Bhansali (Contact Author)

LongTail Alpha, LLC ( email )

500 Newport Center Drive
Suite 820
Newport Beach, CA 92660
United States

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