Question

What does it mean if there were negative Yields to Maturity? How would countries respond in a time value of money context

Answer 1

Negative-yielding bonds are bonds that cause bondholders to lose money when they mature. This happens when holders of such bonds will end up with less money than what they used to purchase them. That is, in a negative yield to maturity, the bondholder loses money on the investment by generating a negative total return.

Negative yields on bonds are no longer unicorns. In several countries, government bonds are trading at negative nominal yields. Negative central bank rates push down short-term rates on other types of lending, which in turn influence business and consumer rates. Negative rates also spur banks and other investors seeking yield to buy short-term government debt, pushing up prices and lowering yields on these securities. And rates on corporate bonds are in turn linked to yields on government debt. Ultimately, because negative central bank rates affect bond market yields, they affect bond benchmarks.