The Black Hole Engulfing the World’s Bond Markets

There’s a multitrillion-dollar black hole at the heart of the world’s financial markets. Negative-yielding debt -- bonds worth less, not more, if held to maturity -- has spread throughout the bond universe, destroying potential returns for investors and turning the system as we know it on its head. Even in the U.S., an outlier so far, concern about the global coronavirus epidemic has sent Treasury yields hurtling toward zero. Sub-zero bonds look like they’re here to stay, with implications for mom-and-pop savers, pensioners, investors, buyout firms and governments.

The path to a negative yield typically starts when an investor buys a bond for more than its face value. If the total amount of interest the bond pays over its remaining life is less than the premium the investor paid for the bond, the investor loses money and the bond is considered to have a negative yield.