Negative yielding bonds – are we near the end of the paradox?

Shakespeare liked a paradox and it’s what makes Hamlet famous. In contrast, investors would be more than happy to see the end the paradox of bonds with negative returns. When they first appeared in yen, swiss franc, euro and sterling, emergency meetings were held with sales and clients to explain how the paradox was possible: what investor would lend at negative rates?

Since then, over the Covid period, half the euro investment grade corporate bond market has negative yields and everyone has got used to it (chart 3). The frustrating answer of ‘why’ in today’s complex wholesale market, dominated by regulation and central bank asset-purchase programs, is that it makes sense if it is the least bad option. 

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