Why are Japan's bond yields so close to 0%, and whats the appeal in buying them if their yields are so low? - Seedly

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Asked by Anonymous

Asked on 14 Mar 2019

Why are Japan's bond yields so close to 0%, and whats the appeal in buying them if their yields are so low?

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Lok Yang Teng
Lok Yang Teng
Top Contributor

Top Contributor (Jan)

Level 6. Master
Updated on 15 Mar 2019

Why invest

When Japanese investors invest in bonds overseas (e.g US), they'll apply currency hedging (to reduce foreign exchange risk). As a result, there will be additional premium for investing. The rising hedging cost renders it unviable to invest in US bonds since net returns would be higher when investing locally.

Why the low yield

This results in Japanese investors to pull their money back to domestic markets. When demand increases, price of bond will increase and bond yield will decrease.

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