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

Anonymous

22 Dec 2019

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General Investing

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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Quantitative easing, central banks buying gov bonds, printing money so as to reduce long-term interest rates in the hope of spurring domestic spending & investment

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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