The coronavirus crisis has brought another first to U.S. financial markets — negative yields on government debt.
Yields on both the one-month and three-month Treasury bills dipped below zero Wednesday, a week and a half after the Federal Reserve cuts its benchmark rate to near-zero and as investors have flocked to the safety of fixed income amid general market turmoil.
The U.S. now joins large swaths of Europe and Japan that also have negative-yielding debt.
In Germany, the move was even more prevalent, with all government fixed income instruments except the 30-year bond carrying rates below zero. Denmark, France and Sweden are among other European nations also in the category.
Negative yields are largely a function of demand, as prices and yields move in opposite direction for bonds. Investors pay a large premium above par on the bonds and can receive less than their initial investment at maturity. Deposit rates also can be negative.
The negative rates, however, are not directly related to central bank policy. Fed officials have rejected the notion that the U.S. central bank might eventually take its policy rate below zero.
This is a developing story. Check back for updates.
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