Question

12. Treasury Bonds The following Treasury bond quote appeared in The Wall Street Journal on May 11, 2004: 9.125 May 09 100.09375 100.12500 -2.15 Why would anyone buy this Treasury bond with a negative yield to maturity? How is this possible?

Answer 1

A negative yield to maturity, also called negative yield bonds, are essentially bonds in which an investor is spending money to place an investment, in other words, a negative yield implies a cost to the investor for investing in the particular bond. However, if the investor expects yields to fall further, that is become more negative, such an investment is a viable one. If the yields falls further, the bond prices shall rise due to the inverse relationship between bond yields and bond prices and then the investor can sell the higher priced bonds at a profit. In case of such negative yield bonds, potential buyers can be the Central banking Institution of the country.