Economic twilight zone: Bonds that charge you for lending
Imagine lending money to someone and having to pay for the privilege of doing so. Or being asked to invest and informed of how much money you’ll lose.
Sounds absurd, but increasingly that’s the global bond market these days. A rising share of government and corporate bonds are trading at negative interest yields — a financial twilight zone that took hold after the financial crisis and has accelerated on fear that a fragile global economy will be further damaged by the U.S.-China trade war.
On Wednesday, for the first time ever, the German government sold 30-year bonds at a negative interest rate. The bonds pay no coupon interest at all. Yet bidders at the auction were willing to pay more than the face value they would receive back when the bonds mature.
Boldfaced emphasis added by me.
And:
The sale added to the mountain of negative-yielding bonds around the world that investors have gobbled up, suggesting that they expect global growth and inflation to remain subpar for years to come. After all, accepting a negative yield on a bond — agreeing, in effect, to lose money in exchange for parking money in a safe place — could reflect expectations that yields will sink even further into negative territory.
Boldfaced emphasis added by me.
Previously here:
Mike Cane's Atomic Supermen 