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by kgwgk
2499 days ago
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It seems clear that the bond holders will not be getting any positive coupon and they are guaranteed to lose money. That's why this is in the news and we're talking about it. As far as I understand the issuer cannot just sell the the bonds at 105% or whatever to account for the loss upfront with the price converging to 100% in 10 years (because these are callable bonds) and apparently they have some technical problems to implement negative coupons: "The negative callable bond is creating some technical difficulties. Jyske said it will initially be registered as a floating-rate bond until the systems of VP Securities, Denmarkâs central securities depository, are adapted to handle negative coupons for fixed-rate bonds." https://www.bloomberg.com/news/articles/2019-08-05/first-10-... In case you think negative yields cannot happen, it is definitely possible. Many government and corporate bonds in Europe are trading at a price which is above the value of the nominal plus all the remaining coupons. Germany has issued last month zero-coupon bonds which were sold above par and they are trading now at 106.87 euros (and the only thing you will get back if you hold them to maturity is 100 euros in 2029). https://www.deutsche-finanzagentur.de/en/fact-sheet/sheet-de... |
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To be fair, I imagine it could still happen that these bonds have zero or positive yield if they are bought at more than a 5% discount, but in that case why would the issuer bother offering negative coupons in the first place?