|Negative Yield Debt Now 20 Percent of Entire Market|
central banks buy bonds to drive economic growth and that they continue doing so even in the event of a negative yield.
Question: Would that be the reason, for example this seek for economic growth, results on Elon Musk raising money for all his proejcts?
By: Chris Gaetano
Published Date: Mar 26, 2019
One fifth of all investment-grade debt in the world is now at a below-zero yield, meaning those who buy it are guaranteed to lose money on it, according to Bloomberg. This encompasses everything, from Treasury notes to corporate issues to emerging market bonds.
Bloomberg said that recent moves by the Federal Reserve, as well as weak European data, have caused many investors to shift from looking for growth opportunities to just safe places where they can store money, which sparked demand for save-haven assets.
This development in turn caused the U.S. yield curve to invert last week, which has itself caused market fears in other areas. The end result has been $10 trillion worth of negative-yield bonds, the highest levels since 2017.
One might wonder why, if such bonds are guaranteed to lose money, people even buy them. There are a couple of reasons why there was, and still is, to some degree, demand for such bonds.
One is that central banks buy bonds to drive economic growth and that they continue doing so even in the event of a negative yield.
Similarly, certain large institutional investors will also keep buying them because they're bound by their charters to do so even if the yield slips into the negative territory.
On a small scale, individual investors might choose to buy them on the belief that the currency they're denominated in will rise in value to the point where the increased worth cancels out the negative yield, at which point it can still generate profit.
Along these same lines, they may also be bought on the belief that the currency might fall in value, in which case the bond, while a guaranteed money-loser, will still retain more value than actual cash.