Question

With the Covid-19 crisis and its impact on the economy, analysts have speculated about
governments lowering their currently very low rates into negative territory. There are many reasons why investors would buy treasury bonds with negative rates.

However, as negative interest rates are basically in uncharted territory, analyze and evaluate around 200 words whether YIELD CURVE ANALYSIS IS STILL VALID for negative interest rates.

Answer 1

Yes, even though interest rate become negative, yield curve analysis will always be important and investors will be buying treasury bonds with negative rates because investors are highly sceptical about the current situations which is prevailing in the economy and they are worried that other forms of asset might be leading to loss of their investment completely because there is a huge risk associated with the underlying stocks and other sectors because they are not performing due to sluggishness in demand in the entire economy and they are trying to latch onto the treasury bonds because they want their investment to be SECURED and even though there is a risk associated with negative return but they want complete security on part of their principal payment because treasury bonds are completely free nature and they will be backed by the government so these bonds will be offering the investors optimum money and their complete principal repayment at the maturity so risk is eliminated to a large extent on part of the defaulting on these loans.

Investors are highly sceptical about the performance of other asset classes and they are believing that they are going to lose their capital to a large extent if they are investing into other asset classes so they are sticking to the treasury bonds and they are trying to protect their capital and even though they are getting a loan rate of interest they are still investing into these bonds because they are fearful about the underlying economy and its negative growth rate which will have a negative impact on the stocks so investors are buying treasury bonds with negative rates.