How can yield to maturity be negative

While it is usually done by using a software program, an approximate YTM can be obtained from a bond yield table. A bond may have a negative YTM calculation. It depends on how much less than par value the investor paid for it and how many payments will be made before it reaches its maturity. In this scenario, the bond table will show that the bond will have a YTM of about However, a bond will not necessarily present a negative actual yield simply because the investor paid more than face value for it.

Finally, when using the YTM calculation, it is possible to have a negative yield on a bond, depending on how much one initially pays for the bond and its time to maturity. All of the above is related to the normal functioning of the bond market in the U. As of late, more than a quarter of global bond debt had a negative yield. This is because, in an era of extremely low interest rates, many large institutional investors were willing to pay a little over face value for high-quality bonds.

They accepted a negative return on their investment for the safety and liquidity that high-quality government and corporate bonds offer. Fixed Income Essentials.

Corporate Bonds. Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. You might be wondering why anyone would purposely hold on to an asset that pays a negative rate of return. But big institutional investors — think central banks, pension funds, insurance companies — are willing to accept a negative return for several reasons.

For one thing, bonds are still considered among the safest assets out there. Stable governments issuing high-quality bonds reliably make good on repayment. For example, investing in U. Treasury securities is generally considered risk-free. In addition, bonds are easy to buy and sell, which makes them easy to turn into cash.

That liquidity is attractive when it comes to asset allocation. Plus, investors can pledge bonds as collateral on new loans. Another reason that investors may be willing to accept negative returns is their outlook on the future market.

If investors believe bond prices will keep rising, for example, they may predict that their gains from selling higher in the future will make up for negative yields now. Some large investors may have no choice when it comes to negative yield bonds. For example, institutional investors in the U. As with all global market scenarios, the effects on the average investor can be difficult to figure out. The ECB does not endorse or take responsibility for the content of any other website that this website section may direct users to or for any replication of the content of this website section on other websites or in any other form of redistribution.

This disclaimer is without prejudice to the general disclaimer and copyright of the ECB. We are always working to improve this website for our users. To do this, we use the anonymous data provided by cookies. Learn more about how we use cookies. See what has changed in our privacy policy. Search Options. Sort by Relevance Date. Statistical information request General description of ECB yield curves methodology A yield curve which can also be known as the term structure of interest rates represents the relationship between market remuneration interest rates and the remaining time to maturity of debt securities.

Data availability Daily yield curves are now available, with data from 6 September onwards, and are calculated and released on a daily basis according to the TARGET calendar. Ratings provided by Fitch Rating. Selection of bonds The following criteria are applied when selecting bonds: Only bonds issued in euro by euro area central government European System of Accounts sector code 'S. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

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Related Articles. Fixed Income Essentials When is a bond's coupon rate and yield to maturity the same? Coupon Rate: What's the Difference? Holding Period Return. Partner Links. Bond valuation is a technique for determining the theoretical fair value of a particular bond. What Is a Bond? A bond is a fixed-income investment that represents a loan made by an investor to a borrower, ususally corporate or governmental.

Average Price Average price is the mean price of an asset or security observed over some period of time. Bond Yield Definition Bond yield is the amount of return an investor will realize on a bond, calculated by dividing its face value by the amount of interest it pays.