Yield on Japanese 10 Year Bonds Goes Negative

Given Japan’s outsize public debt, holding an i.o.u. from its government might seem like a risky proposition that would require the promise of a substantial reward. But this week, as global economic fears drove money into safer assets, investors in Japanese debt began essentially performing that service for free. On Tuesday, the yield on Japanese 10-year bonds, the benchmark of government borrowing, dropped to zero for the first time. They quickly fell into negative territory, meaning some investors were buying bonds despite knowing that if they held them until maturity, they would come away with less money than they paid. And on top of that, a strong yen dragged Japanese stocks down more than 5 percent in the worst trading day this year. The reversal of bond-investor logic flows from the introduction of negative interest rates by the central bank, the Bank of Japan, experts say. The bank’s governor, Haruhiko Kuroda, surprised markets on Jan. 29 by announcing that it would start charging private-sector lenders a penalty of 0.1 percent to hold onto their excess cash, or reserves. The move was intended to bolster the Japanese economy, but the flight by global investors to perceived safe assets is complicating the effort.

Source: Bonds Follow Bank of Japan Into Negative Territory – The New York Times

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