Bloomberg Businessweek - USA (2019-07-29)

F I N A N C E

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BloombergBusinessweek July 29, 2019

Edited by

Pat Regnier

Withcentralbankssettingratesbelowzeroandinvestorsbuying

bondsathighprices,there’sa hugepileofdebtpayinga negative

yield.Whatchangeswhenit coststolendandpaystoborrow?

1/29/10

$0t

The Bonds

That Eat

Your Money

①Marketvalueofnegative-yieldingbonds*

Investorshavetopaytoownmorethan80%of

Germany’sfederalandregionalgovernmentbonds;

almosttheentireDanishgovernmentmarketis

negative.TheU.S.is oneofa dwindlingnumberof

nationswithnonegative-yieldingsovereigndebt.

Howcana bondhavea negativeyield③? It

startswhenaninvestorbuysa bondformorethan

itsfacevalue.If thetotalamountofinterestthe

bondpaysoveritsremaininglifetimeis lessthan

thepremiumtheinvestorpaidforthebond,the

investorlosesmoneyandthebondis considered

tohavea negativeyield.

Investorsarewillingtopaya premium—andulti-

matelytakea loss—becausetheyneedthereliability

andliquiditythatgovernmentandhigh-quality

One ofthebasic assumptionsofdebt isthat

borrowerspayinteresttolenders.Thatideahas

beenupendedintheglobalbondmarket.There’s

nowabout$13trillioninnegative-yieldingbonds①.

Investorswhoholdthemtomaturitywillendup

gettinglessmoneythantheypaidforthem,even

includinginterest.Theprevalenceofnegative

yieldspullsdowntheratesonallkindsofdebt—

includingriskierloans—creatinga bonanzaforbor-

rowersandsomepainforlendersandsavers.Yet

theseless-than-zeroratesarelargelya symptomof

deeperproblemsintheeconomy.

Negative-yieldingbondsmakeupabouta quar-

teroftheinvestment-gradedebttrackedbythe

BloombergBarclaysGlobal-AggregateIndex②.