Economics
How Negative Rates Can Send Bond Prices Soaring
- In zero-rate world, no price is too high for perpetual debt
- Thought experiment in bond math creates paradox for investors
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Pricing a bond that never matures is one of the more straightforward tasks in all of finance. Divide the annual interest rate by its prevailing yield and -- voilà -- price.
But if negative interest rates are really here to stay, well then, things could get crazy real quick. That, at least, is the conclusion of former Long-Term Capital Management co-founder Victor Haghani.