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Could you elaborate on this a bit more? How could one gain anything from buying negative yielding bond?
by programmertote 7y ago
Could you elaborate on this a bit more? How could one gain anything from buying negative yielding bond?
- rossriley 7y agoBecause the bond pays out at the end of the term, but you can sell it at any point of the term for whatever the market price is. So for example let's say you bought a -0.1% yield, but newly issued bonds are now only offering a -0.5% yield you can now actually sell your bonds paying out -0.1% at a profit, since even if they paid you a 3.5% premium on the price you paid, it would still be more attractive than the rate on offer for new bonds.
- pbk1 7y agoPiggy backing off of this followup, bond prices move inversely with yields. Ceteris paribus, a -0.5% yielding bond commands a higher price than a -0.1% yielding bond. Bonds are quoted in yields but traded on a dollar price (typically as a percentage of par) hence the capital gain I implied above being realized with the higher price should yields/rates fall further.