Negative Interest rates are here today!

Quantitative Finance Level 2

Interestingly, Spain has declared a negative interest rate, meaning that a lender is obliged to pay the borrower money. The borrower will see the principal owned decrease in amount, without even paying back a single cent!

True or False

In an environment of negative interest rates, one should never buy a bond.

Image credit: Jorge Lascar .
False True

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Calvin Lin by Calvin Lin

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1 solution

Venture Hi
Apr 13, 2015

Bonds prices move inversely with interest rates. If interest rates are going down, rest assured bond prices are moving up. But I think theres more to it than just this like hidden costs lol

1 Helpful 0 Interesting 0 Brilliant 0 Confused

There are very few hidden costs involved in trading (unless you use a shady broker). There are upfront transaction costs for executing the trade, though that is often minimal compared to the value of the trade.

Calvin Lin Staff - 6 years, 2 months ago

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