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Homework answers / question archive / One of the basic assumptions of debt is that borrowers pay interest to lenders
One of the basic assumptions of debt is that borrowers pay interest to lenders. That idea has been upended in the global bond market. There’s now about $13?trillion in negative-yielding bonds. Investors who hold them to maturity will end up getting less money than they paid for them, even including interest.” Required: Explain the phenomenon of Negative yield to maturity. What are the causes and implications of negative yield to maturity for the financial markets? (Use the yield curve to support your argument).
Negative yield to maturity will mean that when the bond yield will be negative, and investors will be receiving lower money at the maturity of the bond than the original purchase price of the bond, so even when factoring in the coupon rate or interest paid by the bond negative building Bond mean the investors have lost the money at the maturity.
Negative yield to maturity will be happening when the premium Bond has to sell for a price which is far above the price that all its future coupon payment could not be sufficiently outweigh the initial investment which has been made on that purchase.
Causes of negative yield is that investor will be receiving less money at the maturity of the bond and he has bought a premium bond that was selling for a very higher price than the par value.
Negative yield to maturity will mean that the financial markets will be having a high degree of risk associated with recession in the economy and investor will be always looking to protect his principal rather than lose his principal.
