Negative Yields In 90 Seconds

Synopsis

In essence, negative yielding bones mean investors pay more than the face value of a bond plus interest payments, accepting a guaranteed loss if held to maturity. The relationship between bond prices and yields is crucial; as bond prices rise, yields fall, and vice versa. For instance, banks find buying the German 5-year bond at -0.08 percent more favorable than depositing money at the European Central Bank, which offers a -0.02 percent rate. The European Central Bank plans to buy massive amounts of bonds to stimulate the eurozone economy, likely pushing bond yields further into negative territory. This action will increase bond prices, allowing investors to achieve capital gains that can offset negative yields.