I am confused. You buy a bond with a certain coupon, either with a discount or premium. Upon maturity, you receive the face value of the bond and coupon. When can it be negative? Only if you sell... OK, with an ETF, I can see paying for ETF/yield and ETF goes down more than the yield cover, but how is that possible with a high yield bond?
lets say you buy a bond maturing in 1yr with a coupon of 10% and you pay a price of 111.00. You pay 111 for the bond and receive 110 at maturity. Voila negative yield.
Ask all those Bund buyers.....in practical terms you may rationally buy a negative nominally yielding bond if its real yield is positive, i.e. deflation, or if you expect to sell it before maturity at a higher price.
You have two choices -- there is A) ____________________ and there is B) "A kick in the nuts." If you *willingly* choose a kick in the nuts, what does that tell you about choice A? "Answer is simple, use the math." Indeed.
%% Several reasons.[1]Some think bonds are an important part of investment\so focused on risk, may lose less than stocks. So they dont care about buyer beware. [2]Even with negative yield, read WFC, related , US bond fund managers earned an additional 3%, annualized,on negative yield bonds/currency hedging. [3] This #3 may not be the best choice of words/LOL. BUT bag holders that bought 10 year German gov bonds with a negative 0.26% yield , JULY example, did fine , because bonds increased 4%....... US insurance annuities can do much worse than that negative yield/counting fine print\prepay penalties.
Nominal, negative yields are a tool of central banks that charge a fee on excess reserve balances. So far anyway, you are unlikely to encounter bonds with a negative nominal yield (I think). Germany sold 30 yr bonds at a zero coupon rate in 2019. They sold initially, I believe , at slightly above their face value; thus assuring a negative real yield if held to maturity and there is no net deflation. Apparently investors were anticipating a further drop in interest rates.
The way I understand it sovereign debt with negative yields is held for its risk-weighting and then it's rehypothecated. Note, I'm not an expert in the area, but there seems to be plenty of research on the topic. Here's a BIS working paper that might help. Also see the many papers, presentations and books by Singh. https://www.bis.org/publ/work561.pdf