Negative Yields Could Be the Death of Bond Markets
How long can investors go on pretending that sub-zero interest rates are normal?
Is it even a bond if it offers no fixed-income payments and guarantees a loss if held to maturity?
Photographer: Simon Dawson/Bloomberg
Negative yields have never truly made sense.
And yet, if you work in finance or even just read about markets in general, it’s starting to feel as if the once-absurd (or, at least, strictly academic) is starting to be considered, well, normal. Bloomberg Businessweek’s latest cover in Europe and Asia reads: “No Escape From Low Rates: A Decade of Cheap Money Is Warping the World.” It follows the European Central Bank’s decision last week to keep its key interest rate below zero, and it hinted at cutting the rate even further in the near future.