Negative-yielding

Negative-yielding describes an investment, typically a bond or other debt instrument, that offers a return below zero. This means an investor is essentially paying to lend money, receiving less back at maturity than they initially invested. This phenomenon usually occurs during periods of economic uncertainty, low interest rates, or deflationary pressures, as investors may be willing to accept losses for the perceived safety and liquidity of such assets. Governments and corporations sometimes issue negative-yielding debt when borrowing costs are extremely low.

Negative-yielding meaning with examples

• The recent economic downturn pushed many European government bonds into negative-yielding territory. Investors flocked to these perceived safe havens, accepting losses for security. This paradoxical situation highlighted the prevailing market anxiety. Investors feared deflation, where the real value of debt increases.
• Despite the negative-yielding environment, the corporation managed to issue its debt because institutional investors needed high-quality debt. The high demand let them secure funding at unprecedentedly low levels, reflecting a very unusual monetary policy. The central bank policies were intended to stimulate lending.
• A negative-yielding mortgage would be an unusual event where the borrower effectively receives money from the lender over time. However, if inflation were to drop significantly then the interest rate could be negative in real terms. The money supply would be quite large to let this happen.
• The surge in demand for safe assets has created a negative-yielding bond market, causing concern among some economists. They warn it could be a sign of an impending economic recession. The price to pay for that safety has become very high.
• While negative-yielding investments may seem counterintuitive, a savvy investor can still make a profit. They would have to do this by buying them, not necessarily holding them until maturity but selling them at higher prices.