{"id":14898,"date":"2019-08-11T10:14:59","date_gmt":"2019-08-11T09:14:59","guid":{"rendered":"https:\/\/traders-paradise.com\/?p=14898"},"modified":"2020-07-18T11:04:00","modified_gmt":"2020-07-18T10:04:00","slug":"why-zero-bond-yields-happen","status":"publish","type":"post","link":"https:\/\/traders-paradise.com\/magazine\/2019\/08\/why-zero-bond-yields-happen\/","title":{"rendered":"Why Zero Bond Yields Happen"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_74 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/traders-paradise.com\/magazine\/2019\/08\/why-zero-bond-yields-happen\/#Bond_yields_in_high-level_markets_are_declining_for_the_last_20_years_What_is_happening_with_negative_or_zero_bond_yield\" >Bond yields in high-level markets are declining for the last 20 years. What is happening with negative or zero bond yield?<\/a><ul class='ez-toc-list-level-6' ><li class='ez-toc-heading-level-6'><ul class='ez-toc-list-level-6' ><li class='ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/traders-paradise.com\/magazine\/2019\/08\/why-zero-bond-yields-happen\/#By_Guy_Avtalyon\" >By Guy Avtalyon<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/traders-paradise.com\/magazine\/2019\/08\/why-zero-bond-yields-happen\/#Why_zero_bond_yields_happen_now\" >Why zero bond yields happen now?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/traders-paradise.com\/magazine\/2019\/08\/why-zero-bond-yields-happen\/#How_does_this_impact_your_investments\" >How does this impact your investments?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/traders-paradise.com\/magazine\/2019\/08\/why-zero-bond-yields-happen\/#Why_a_zero_bond_yield_is_bad\" >Why a zero bond yield is bad?\u00a0<\/a><\/li><\/ul><\/nav><\/div>\n<h4><span class=\"ez-toc-section\" id=\"Bond_yields_in_high-level_markets_are_declining_for_the_last_20_years_What_is_happening_with_negative_or_zero_bond_yield\"><\/span><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-14900 size-full\" src=\"https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2019\/08\/interests-2-1.jpg\" alt=\"Why Zero Bond Yields Happen\" width=\"800\" height=\"533\" srcset=\"https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2019\/08\/interests-2-1.jpg 800w, https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2019\/08\/interests-2-1-300x200.jpg 300w, https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2019\/08\/interests-2-1-768x512.jpg 768w, https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2019\/08\/interests-2-1-370x247.jpg 370w, https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2019\/08\/interests-2-1-760x506.jpg 760w, https:\/\/traders-paradise.com\/magazine\/wp-content\/uploads\/2019\/08\/interests-2-1-424x282.jpg 424w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><br \/>\nBond yields in high-level markets are declining for the last 20 years. What is happening with negative or zero bond yield?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<h6><span class=\"ez-toc-section\" id=\"By_Guy_Avtalyon\"><\/span><a href=\"https:\/\/www.linkedin.com\/in\/guy-avtalyon-67941b54\/\">By Guy Avtalyon<\/a><span class=\"ez-toc-section-end\"><\/span><\/h6>\n<p><span style=\"font-weight: 400;\">Zero bond interest rates mean that the yields of the bonds are 0%. This indicates a monetary policy that aims to stimulate the economy but is approaching its short term limits as the short term interest rates can\u2019t be negative. This situation indicates that monetary-policy makers and markets see increased deflationary pressure on the currency of the country.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This leads to long term bonds\u2019 interest rates to be negative. For example, in Germany the ten-year bond yield is negative, it is minus 0.02 percent. Actually, $13 trillion worth of bonds is giving negative rates. This interest rate will be accruing nominal losses to investors until 2030.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In Japan, low-interest rates on a bond are predicted to stay zero or negative even longer. The 10-year bond yields in the US are a bit above 1% and the UK about 2.4%. Both countries suggest a minimum or no tendency of raises in the near future.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, bond yields in high-level markets are decreasing for the last 20 years which was unbelievable just 2 decades ago.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Why_zero_bond_yields_happen_now\"><\/span><strong>Why zero bond yields happen now?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The financial crisis in 2008 loan growth shifted negative and continued to be depressed for a long time. It happened because households and companies had too much debt and they wanted to pay down debt. They wanted to have no debts even when the central banks started cutting the interest rates closer and closer to 0%.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The same case was seen in Japan in the 1990s during the Lost Decade.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Bonds interest rates are <a href=\"https:\/\/traders-paradise.com\/magazine\/2019\/03\/financial-markets\/\">market<\/a> prices, meaning they are a measure of the supply and demand of bonds. The demand is driven by a desire for low-risk assets. And bonds are a less risky asset than stocks because they offer fixed payments for an exactly fixed time. The bondholders will take something even if the country or company that issued bonds experience the crash. The interesting thing about bonds is that the riskier bond is, the pay-out is higher because investors are compensated for accepting the higher risk.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Today, the bonds are less risky than ever. The investors are buying bonds with lower yields. Low-risk assets are exceptionally good-looking when markets are unpredictable or uncertain. For example, today in the US you have investors worry that a recession caused by a trade war with China could crash the stock markets.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">That&#8217;s why even negative bond yield rates are more desirable than the other choices.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, pension funds usually are buying bonds, no matter how high or low is the rate. Either from prudency of fund managers or the regulation. For instance, German pension funds hold bonds more than other assets because they can invest only 35% in risky securities.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"How_does_this_impact_your_investments\"><\/span><b>How does this impact your investments?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Well, it depends on what is your outlook as an <a href=\"https:\/\/traders-paradise.com\/magazine\/2019\/07\/passive-investing-is-a-good-choice\/\">investor<\/a>, meaning are you, borrower or saver. That will determine your benefit from zero bond yield.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Low rates can be very bad for retirees. They more often hold more bonds. Retirement <a href=\"https:\/\/traders-paradise.com\/magazine\/2019\/07\/investing-bonds\/\">investment<\/a> expenses have grown amazingly costly. Baby boomers may have profited from economic increase and growing stock markets. But their retirement is much more costly also. Anyway, savers and pensioners are punished when the nominal value of their investment falls.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Actually, everyone will get a lower return on investments, or be forced to take more risk to generate a higher return.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If stock prices decline that will cause more <a href=\"https:\/\/traders-paradise.com\/magazine\/2019\/02\/economic-downturn-prepare\/\">economic instability<\/a>. On the other hand, a lower cost of capital can boost investment and push more growth. That will be the benefit of everyone. And this possibility is the driver behind the policy of cutting interest rates by central banks.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Why_a_zero_bond_yield_is_bad\"><\/span><span style=\"font-weight: 400;\"><strong>Why a zero bond yield is bad?<\/strong>\u00a0<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">If the price is zero, savers will accumulate less and get less return on prior savings.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Imagine this deal as an example of zero bond yields. You borrowed to some company $1,000 today and it will return $900 or $1,000 with no interest rate to you in a decade.<br \/>\n<\/span><span style=\"font-weight: 400;\">What?<br \/>\n<\/span><span style=\"font-weight: 400;\">This is exactly what is happening with negative or zero bond yield. That is not how it should work. <\/span><span style=\"font-weight: 400;\">You have to make a profit when you put your <a href=\"https:\/\/traders-paradise.com\/magazine\/2019\/07\/money-management\/\">money<\/a> in the market or the bank.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Nicholas Colas, the co-founder of DataTrek, explained: \u201cBonds are supposed to pay the owner of capital something to pry the money out of their hands.\u201d<\/span><\/p>\n<p><span style=\"font-weight: 400;\">But, some really wise investors have invested almost $15 trillion in government bonds that offer negative interest rates, per a report of Deutsche Bank. That is approximately a quarter of the overall bond market.<br \/>\n<\/span><span style=\"font-weight: 400;\">Negative interest rates of long term bonds in a situation of the zero-bound interest rates allow politicians to give more promises waiting the day when interest rates return to rational levels, and taxes rise to pay for it all.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Bond yields in high-level markets are declining for the last 20 years. What is happening with negative or zero bond yield? By Guy Avtalyon Zero bond interest rates mean that the yields of the bonds are 0%. This indicates a monetary policy that aims to stimulate the economy but is approaching its short term limits [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":14902,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[1018,1023],"tags":[250,680,2350,2351,1137,1138],"class_list":["post-14898","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-personal-finance-secrets","category-bank-accounts","tag-bonds","tag-buy-bonds","tag-why-a-zero-bond-yield-is-bad","tag-why-zero-bond-yields-happen-now","tag-zero-bond-interest-rates","tag-zero-bond-yields"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Why Zero Bond Yields Happen - Traders-Paradise<\/title>\n<meta name=\"description\" content=\"Zero bond yields can be zero or negative. 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