Hacker News Reader

If I expected interest rates to go even more negative, buying a negative yielding bond in anticipation of a capital gain is a rational trade.

Also banks and certain investors are mandated to purchase debt with certain ratings - in the absence of positive-yielding appropriately rated bonds they have no choice but to accept the negative yield.

View on HN

Could you elaborate on this a bit more? How could one gain anything from buying negative yielding bond?

Because the bond pays out at the end of the term, but you can sell it at any point of the term for whatever the market price is.

So for example let's say you bought a -0.1% yield, but newly issued bonds are now only offering a -0.5% yield you can now actually sell your bonds paying out -0.1% at a profit, since even if they paid you a 3.5% premium on the price you paid, it would still be more attractive than the rate on offer for new bonds.

Piggy backing off of this followup, bond prices move inversely with yields. Ceteris paribus, a -0.5% yielding bond commands a higher price than a -0.1% yielding bond. Bonds are quoted in yields but traded on a dollar price (typically as a percentage of par) hence the capital gain I implied above being realized with the higher price should yields/rates fall further.

Reply on news.ycombinator.com