Question

“Explain why several government bond yields (including German, Finish and Swiss) turned negative in January 2015? Discuss the implications to issuers and bondholders"

Answer 1

Government bond turned negative due to expectation of sharp economic downturn and active monetary policy which cut down the interest rates to the level of Zero, so it lead to a negative yield on the the bonds and it was also representing a preference of the investor to invest for the shorter term bonds

When there will be a negative bond yield, it will mean that issuer will be having a higher interest to pay on their bonds and those issuer who have callable bonds issued they will be trying to redeem their bonds and they will be issue new bonds. it can also be understood that when the bond yield are falling, it will mean that the prices of bonds are rising.

investors will be likely to switching to the safer securities like bonds because they are very sceptical about the future growth as it can be seen that when the bond yields are negative, it will mean projecting a serious downturn and investor will be trying to have a larger portion of bonds in their own portfolio and we can see that since the bond yield is low, so the bond prices will be high, so investor will always be buying the bonds at Higher at the time of recession expectation or Economic downturn.