I need somebody who understands bonds to help me
I see plenty of posts about the yield curve so if there are posts about the yield curve one would assume these people know something about bonds
So my question to anybody
Why do we have some 14 trillion of world debt yielding negative int
What fool would pay somebody to borrow their money
I suppose the greater fool theory might apply. In fact this is the only theory I have
If the bond you lent to somebody had it's int rate go down even further into negative territory then would that bond be worth more
Thus if you can find a greater fool to buy your bond you have a profit
My concern would be
What happens when we run out of fools who would buy negative yielding bonds. Seems to me that might happen rather quickly. But apparently not if that 14 trillion number is correct
This really baffles me
Great question Wayne, thanks for asking!
This is not my area of expertise but here's some information on it:
https://www.bloomberg.com/graphics/2019-negative-yield-debt/
So here is what makes sense to me Wayne.
The stock market is the main game in town in the US(that does not have negative bond rates) but some big investors may want a safer place to park their money in this extremely low interest rate environment and there aren't many safe places that pay much interest.
Bond prices are inversely proportional to interest rates. As interest rates go down, the price/value of the bond goes up and bond prices go down with interest rates going up.
With that being the case, an investor might consider buying a bond, if they expected interest rates to fall because the face value of the bond would go up and be worth more.
That would even be the case if the interest rate dropped to below zero because the face value of the bond that they owned and could sell would be worth more than they bought it for if they expected the interest rates to keep falling(which would cause bonds prices to keep going higher)
So, expectations of falling interest rates in the future to less than what they are now, would inspire people to buy bonds with an already negative interest rate, if the interest rate attached to future bonds was expected to get even more negative, which would increase the face value of the bond that they just bought.
I don't follow bonds and have never traded or invested in bonds, so this is just my guess.