How Negative Yields Work | WSJ
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- Опубліковано 22 вер 2019
- Negative yields are occurring with greater frequency in global bond markets. What generates negative yields and why do investors continue to buy these money-losing bonds?
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#WSJ #Bonds #YieldCurve
The only bond that won't go negative is your credit card's interest rate ;)
CC aren't bonds and Bonds have negative YIELDS not interest rates.
😆😆👌
Nobody buy credit card debt, what do you mean ?
@@roxymax8917 You can buy shares of debt collectors
WSJ needs to do a follow up on this video and provide more clarity
WSJ's YT channel is one of the very best on YT. I'm so glad they do these.
It's not the best.
I don't see how any Bank product with a minus sign in front of it could possibly be a good idea.
Unless it is for a loan, where the bank pays you to take a loan!
Very informative.
I’m impressed with the wsj yt page
Excellent presentation, explained with ease please do an animation on bond duration and convexity impacts during regime switch.
Bravo WSJ ( Always perfect )
Sounds like this has the potential to repeat 2008.
Vaibhav C Anil
Only outside the US
So you believe that the German bonds have the same level of risk of 2008's non performing loans?
Michele Mapelli
Worse
This is just wrong. The German public debt is backed by the world's 4th economy, while the non performing loans were a merger of the worst paying customers of banks disguised as some "creative finance" nonsense. Unless the European union's economy suddenly collapses (quite unlikely) there is no way the debt will be not paid back.
How can that be possible, didn't you noticed the calm, cool , assuring voice of the narrator in this video. He wasn't all that worried. After all, just how bad could negative yield really be ? C'mon.
What coupon rate of bond launched with negative yield?? ❓ @WSJ
Negative rates are not only caused by higher demand in the market. Countries like Germany also use it as a form of economic intervention to produce a desired result.
One reason why investors would buy a negative yield bond is to lower risk of loss or hedge against taxes and currency exchange rates.
Nice and quality presentation!
This video asserts that negative rates incentives investors to buy bonds instead of park their money in a bank (2:45) but this makes no sense and doesn't explain why anyone is buying these bonds.
Their rationale seems to be equivalent to a greater fool argument. Bonds will become even more negative so let's buy them now to sell them to suckers later. This doesn't seem to be very rational to me and I have a hard time believing that $16T of assets would get tied up in such stupidity.
I suspect the real answer has something to do with governments/ central banks forcing banks to buy these bad assets. Or Maybe pension funds with rules that force them to buy bonds and the rule-makers never considered negative-yielding bonds would come about. Or something like that.
That said I really have no idea and would love for someone who understands to explain this to me.
Its probably because the whole market is about to crash. I'm pretty sure this happened a little before the last crash and the .com bubble too
It might also be safer to put money in these bonds than it is to store it in a bank because right now there are many banks that don't have enough cash and are on the border of collapse again. So if the bank crashes, theyd only get back the small percentage that is FDIC insured.
Increasingly negative yields means bond prices are going up. So traders can buy bonds and sell later at a higher price. But it’s a bad sign, global markets are surely going to tank. Real money like Gold and Bitcoin are looking pretty good right now.
People buy them to speculate, like he said Bonds are having a lot of demand, and they issue a limited amount of them. So if you can buy some before they are sold out, you can sell it to someone else who wants them, to resell it to someone else even higher. Its like a bubble in the bond maket. The last one who gets the bond till maturity, loses.
Japan has had negative rates for years now. So pretty sure they're not expecting a crash.
I love how WSJ took what NPR's Planet Money podcast covered in it's most recent episode and turned it into a highly visual video.
True !!
Yes so true
How can a yield go negative just from excess demand? If coupon payments are made then yield will always be above zero or close to zero but how can it be negative?
Is it negative because it includes inflation into the calculation of the yield?
It can't. This whole thing is nonsense. The man is confused about the meanings of "yield," slipping unconsciously from one to another.
His logic is very close to that of the paradigmatic Fallacy of the Undistributed Middle:
Half a ham sandwich is better than complete happiness.
Half a ham sandwich is better than nothing, and nothing is better than complete happiness, so aren't you glad you asked?
@@felixf4378
And your real-world example of such a bond is...?
Where and when has anyone in any secondary market paid more than the redemption price for a zero-coupon bond?
@@felixf4378 sounds like tullips to me.
Let’s say a bond has a face value of $100, a coupon of 1%, and a term of 1 year. If you buy that bond for $110, you lost money even though it will pay you $1 in interest. The yield will be -8%. Why do that? Maybe you think -8% will still beat other investments or maybe you want to try and sell it to someone else for $120 to make money.
No it doesn't count inflation. You can buy a bond which will return 100 for $102 on the market today, if you want to. But it's definatley a few low risk bond. And the reason anyone would buy it is because they don't know where else to put the money.
Where do you think your bank puts your money? Giant vault? Too expensive. Just buy some negative yield bonds. You lose 2% of the money, but it's safe and secure, and you're gaurunteed the money back.
This video was good, but didn’t quite explain *clearly* why negative yield is bad for the bond holder. If I hold a bond purchased at $100 and my yield is (negative) $96 (totaling a $196 return), do I really have a problem?
You would only get $96 back, not $196. Negative interest rates are like a termite eating your money. This video is propaganda designed to make people think negative rates are normal. They aren't. This is the first time in thousands of years that interest rates have been negative. It'll end in a collapse of the bond market and potentially a collapse of the dollar (hyperinflation).
Gold , silver, cryptocurrencies heck even some multiplex real estate investments are better than keeping your money in the bank right now
The best investments aren’t necessarily what produces the highest yield at any given time. You have to consider risk and volatility (which the things you listed are famous for)
this is the stupidest thing i've ever heard in my entire life.
(gentle music)
2:43. These negative rates don't trickle down to the deposit holder at a commercial bank. So why would they feel the need to pull out their money? And even if they do, they can just stuff it under their mattress. It doesn't really encourage them to spend.
2:15. Secondly, why would commercial banks lend out their money just because ECB has negative interest rates? Why not just deposit that money at a different private bank that doesn't charge you for holding your money?
I'm not sure I really understand, Its like buying a loan as an item for $1000, and having to pay back $1050. Because in the future that loan as an item might be worth $1100?
ratgreen faster money
"Negative rates give investors an incentive to buy bonds rather than park their money at a bank."
Really? Explain how that works, please? I am incentivized to pay money to forego the use of my money until a later time? You believe this? There are literally 10 million better uses of my money than buying bonds that I have to pay interest on rather than receive interest on. Are you people on drugs? Don't answer that.
@Cromwellian Republican
That is exactly *not* an argument made in this bogus farrago and is, in any event, an example of a positive expected value, not a negative return.
Same here, i was also confused by this statement....can someone please explain?
@@sanronronaldinho
No. Nobody can explain it because it's nonsense.
On the other hand, the guy *has* shown himself fully qualified for UA-cam.
Not my answer, but I’d comprehend as below:
Option 1: you’ll have to pay $1 fee for depositing $100 in the bank for an year. Hence get assured loss of 1% in 1 year
Option 2: you can buy 10Y bond with -1% yield, $100 invested now will be $90.44 in 10 years at maturity. However in 1 year, secondary market value value will be depending on yields at that time.
If yields remain at -1%, market value will be $99 in an year, loss: 1$
If yields changed to -0.5%, market value will be $94.61 in an year, loss: $5.39
If yields changed to -1.5%, market value will be $103.62 in an year, gain of $3.62
If someone think central banks are going to reduce rates further into -ve territory and/or increase QE in an year, they would prefer option 2 over 1.
This musical chair may work until the last person who think yields will go further below realizes that it wouldn’t. Obviously no one will know what the ‘magic number’ is.
Banks are being forced to buy them.
Boom. Explanation.
May be negative yield means, when customers save money in the banks, the customers have to pay interest to the bank instead.
I wish I understood financial concepts better. Its important to know to be a productive person in society.. I don't understand why financial knowledge is not taught in schools as a basic skill when everything is tied to money and economy...
I think you have your answer...
Perhaps what they are saying is that a negative yielding bond will provide a better yield than equities over the same given period of time, whether 2 years or 10 years, etc. For example, in 2 years or 10 years that actually may prove to be the case unless of course the equity markets continue to go up exponentially.
It make no sense that any investor would buy bonds with Negative Yields as investment. But I do know many would accept bonds as a form of payment for fear of not get any at all.
Buy bonds sell when it’s negative yield and profit
Yeah, that's not crazy at all...
Tulip bonds
It's as simple as you do in stocks.
Not only are we taxed with inflation, but if banks pass negative yields down, that's another tax. Thank you government, what would we do without you!
how is a central bank having negative yield on commercial banks serves as an incentive for commercial banks to lower their interest rates? i mean their paying central banks for the privilege of holding their money.. I'm confused. how would it be if central banks had a positive interest rate? how would it work?
"Some investors buy negative yield bonds to sell at a higher price later" That sounds awfully like Tulip Mania
ayylit666 Don’t know how it works, eh?
Greed.. The whole point is to save some cash in the market....
That is called flip the bond
As an undergraduate in Economics
It doesn’t sound awfully like.
It is, unfortunately, exactly the same.
But you don’t have to think the world is going to explode also.
Things like “Tulip Mania” happen very often, one fine example of this is the housing market crash in 2007 and the subsequent financial crisis in 2008.
The thing is, if you know how to properly manage your money, you can survive and still be on top of any recession.
So this means something that have happened before and it will always keep happening:
Rich people get richer when the economy is booming, and get even more richer when there is a recession.
Edit: Sorry, english is not my first language
I have couple of them from 1922
02:06 You’ve stated low inflation as a bad thing. Why is low inflation a bad thing? Is high inflation a good thing?
Inflation is good if it's not too low or not too high. Very low inflation shows very little price increase of goods and service, which implies that consumer demand is weak because if the price is increased (high inflation), it will be more difficult to spark demand
Leonardo Tio hi, why is it a bad thing if prices don’t rise? Better yet would be falling prices.
@@bluegoka falling price shows no demand and low spending power, that means sellers have to keep lowering price. This shows no creation of new wealth
Leonardo Tio With increased productivity prices fall, money has more value, purchasing power increases and wealth is created.
Inflation (the creation of money with no creation of new products or services) do the opposite of that.
@@bluegoka wait, we didn't talk about increased productivity and in reality productivity is not always increasing. But if you said so, Bluegoka but do you think that productivity rose just by chance? There is always training and education involved, or the use of capital. Secondly, if labor realizes that they are becoming more productive, do you think that they will be happy with the current wages/sallary? Do you think that the sallary increase always outweights the productivity improvement? In reality, it is not almost the case. Increasing your factor of production of 10% does not always give extra 10% of production as there is always a point where the law of diminishing return applies. For these reason, even without the production of new money inflation would still occur.
Simply put, it doesn't work
I think neg rts. are an indication of how desperate central banks have become at managing economies; trying new tools never conceived of before. Neg rts. are common in European nations and Japan now. Over time this will play out poorly for those countries that resort to trying it. The days of 4-6% GDP in US and Europe are gone.
This is good for bitcoin and precious metals
Silver and gold has already started going up months ago. Ppl are seeing the signs and are preparing
Bruh can you have a format that you didn't steal from Vox
government use negative yields to lower their debt as well. I think this should also be mentioned
Negative yields mean there's too much money being produced and there's a lack of demand for money on a macroeconomic scale. It means your country's economy is screwed. The big borrowers are not borrowing because they don't feel confident in investing, even at a low interest rates. The little borrowers can't borrow because they are seen as a risk because the outlook on the economy looks bad and they have a higher chance at going under, so their interest rates are too high to make borrowing affordable. The next stage is stagnation, possibly stagnation with inflation or eventually hyperinflation because people completely lose faith in their money.
Both time preference and risk premium is lost... this is game over folks; you just don't know it yet
Negative yields in a booming economy. Sounds pretty normal to me..... /s
Negative interest rate doesn't make sense. Specially in long term bond.
Why not buying Gold instead? Investor that buying negative interest bond is out of his mind.
Yoga Wan Gold market already over sold; And more likely to fall than increase; so isn’t as liquid as bond that can currently sell for a profit
@@maqnthreez that aren't true. Gold have "Real value" and it's the best way to hedge assets.
There is no limit in price of gold.
Yoga Wan Gold average high in ‘99 was $330 and average today is $1500; And yes, real gold has value (and that’s determined what someone will drop a💰for), and the gold market is paper (certificates). So there’s your difference.
Yoga Wan and when gold investors get shaken by that realization of its bubble; it will burst
@@maqnthreez I think u got it wrong Gold it's very limited and u can't "Print" gold. That's why the value keep rising.
Very different with money
Why dont they just hold it in cash then????????
coz the interest rate is low while bond prices goes higher and higher when interest rates are low.
You need growth if debt is going to continue to climb
"Temporary"
I buy negative yielding bonds because I can sell them for a profit in the future? Did you say that? Wouldn't that be a Ponzi scheme?
in the future demand will be low so price will go down too so makes no sense to have such an investment
No...it’s a bond trading like a stock. Buy low & sell high. A Ponzi scheme is taking one investors money and giving another investor the money as profits from the “investment”.
No this would be a bubble, you buy bonds at such a high price and then hope someone buys it for an even higher price. The best part is that these bonds literally make you lose money... Could be wrong but this sounds like a bubble to me.
If a bond's yield is the inverse of its yield, as claimed at 1:43, than a negative yield can only come from a negative price.
Where do I find these bonds that have negative prices, i.e. that people are paying me to own?
Hi David, Junk bonds classified in distressed securities, CAT bonds trade at negative yields. People pay you to own the bond where you pay the interest (works like annuity)
@@ravitejaspark25
Good try, but I think not. They may trade at a loss to the original investor, but only at a positive yield to the purchaser.
Hi David, bond's yield not the inverse of its price. Its "inversely related". This just mean decreasing one increases other and other way round.
Example - if a one yr 100$ bond is priced at $99, it gives a yield of approx 1% while if the bond is priced at $101, it gives a yield of approx -1%. In this case, increasing price decreases the yield.
@@gauravbansal148
You're mixing up capital gain or loss with yield, two different things.
@@TheDavidlloydjones for a one year bond, capital gain is what will influence the yield. By the way, I am in financial risk management, so i use these concepts in my day to day work. 🙂
Deflationary time baby
Are you really speculating investors buy negative yield bonds for potential capital gains appreciation?!? No, sorry.
They really are hyping up that recession rumour aint they?
lol thats nothing compared to gold and silver conspiracy theorists :D or realvisionfinance
Some one is bet against the market.... That why... Just like last time with housing market....
Whuzzin Gamont
Because they’re so desperate for something bad to happen under trumps presidency, but it won’t.
The only business case I can see for these shenanigans are tax avoidance. If buying bonds using your taxable profits is then turned into an expense, then it could be a way to save on that corp tax rate. Then later cash it in on a down year or use the bonds as collateral for financing.
Still a scam though.
Have you invested in bonds?
Have you invested in these bonds?
Greetings from the year 2020 where there is 17 trillion dollars of negative nominal rate bonds.
I mean, this really motivates people to keep cash
I'll take a billion loan with a negative return rate for as long as you want.
Misinformation at best: "... must pay them for the privilege of holding their money." since when was not holding your own money a privilege? Is there a doctrine in finance that says a dollar outside your possession is worth more than a dollar in your possession?
The only logical argument I see is from the borrower's POV, where gov't incents ppl (or companies) to borrower money and stimulate consumer spending (or capital spending in m&a/capex etc) because they'd be relieved of interest and even earn interest income!
What is the best way to profit from the current market, meanwhile I'm still undecided about investing $400k in my stock portfolio to get some dvidends and minimize risk
Remember that investing in the stock market carries risks, and it’s important to do your own research and consult with a financial advisor before making any investment decisions.
With the help of an investment advisor, I was able to diversify my $550K portfolio across multiple markets, and in just a few months, I was able to earn over $950K in net profit from high dividend yielding stocks, ETFs, and bonds
Pls who is this coach that guides you? I’m in dire need of one
My consultant is Nicole Desiree Simon She has since provide entry and exit points on the securities I focus on. You can look her up online if you care for supervision.
I Found her online page by searching her full name, I wrote her an email and scheduled a call, hopefully she responds soon. Thanks
New?
Can anyone explain me the second reason I don’t get it😅😅
My Account
Most likely because you’re in the US and it won’t happen here because our economy is booming
Y’all need to start creating products and physical items instead of all this reselling of mortgages and crypto money
where is all the stolen money?
ask Modi
It means households always suffer
true very much
WSJ has done lots of videos better than this. Poor explanations here of a confusing phenomenon . . .
Buy Bitcoin.
this means at the end of the day poor suffers the most....
Unhelpful visuals to an otherwise well done script.
Hot potato 🥔
Penir fish
Not explained well
Maybe the presenter needs to speak with Marc Chandler.
stefan do it on you own dime
jibberish
Negative Bonds Exist because the people buying it expect price to continue to rise and There will always someone else spending retirement money to buy bonds even if it hurts the idiot who invested their money with a managed fund.
Why would you make an investment in something with negative yield? Then ur just another speculator driving the bubble
Bitcoin
*Bitconnect
endless money printing and millions unemployed is actually a good thing...because it's 2021
So, its basicly another bubble that is about to burst...
Voodoo economics
Time to load up on gold !
Too expensive. Buy silver..
Why not just buy gold or crypto? I don't see how people buy into this scam.
because they are idiot boomers
Silver coins Now preferably 9999 silver Maple Leafs . Silver is the Giant that’s being held down since 1970. But those nails are rusted and about to give. Your only protection is Gods Money and Our Lord Jesus Christ!
Buy cryptocurrency
Buy Bitcoin. Up Over 1,000,000% ROI Since 2009 (Thats not a joke either)