InvestNow News 13th Sep – Pie Funds – Why do investors buy bonds with negative returns?

6th Sept 2019 – Mike Taylor

Why are investors flocking to bonds markets to buy assets with negative interest rates?

About one quarter of global bonds (US$17 trillion worth) now provide negative returns.

“In an uncertain environment people don’t want to lose money so they go to bonds as a safe-haven, that’s what’s driven the demand,” says Pie Funds chief executive Mike Taylor.

Bond markets can seem complex and difficult to understand. There’s a counter intuitive aspect to the way they trade.

“The easiest way to look at it is that when the yield of the bond goes down, the price of a bond goes up,” Taylor says. “It’s opposite of what you might expect with shares.

It is important to remember that when you see media stories about US$17tn of negative-yielding bonds, they are not all being issued that way, he says.

“So not necessarily that many government bonds have been issued with a negative yield. They might be issued at, say, 1.5 per cent, but demand for those bonds is so strong that the price is pushed up and that means you’re buying something that over a 10-year period will give you a negative return.”

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