What kind of market sets up a price in which there are no positive returns for buyer? Is there any market in the world in which the buyer is effectively loosing money and still decides to proceed with the trade? The answer is yes: bond markets.
Bond markets, like any other market, are driven by supply and demand, which set up an equilibrium price satisfying both the buyer and the seller. However, we live now in a strange world in which bond investors (money lenders) are willing to lend money and instead of demanding an interest on the amount they have lent, they pay the borrower what we know as the interest. According to JPMorgan, more than € 1.5 tn worth of Eurozone bonds are now trading in the markets with negative yields. Germany, Sweden, Netherlands, Japan and Switzerland are just some examples of countries that have recently seen their government bonds reaching negative yields. Even more surprising, is the fact that some corporate bonds such as Shell and Nestlé, which are riskier and thus harder to cross the 0% yield bound, have also crossed this boundary. The question is obvious: why would anyone pay to lend money to somebody else? …Continue reading the article here!
Article written by João M. Cunha on February 4, 2015
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