Negative Corporate Bond Yields

Last year, we posted about how the size and number of negative interest rates were increasing in Europe, and how one member of the Federal Reserve was pushing for negative U.S. interest rates. Since then, negative interest rates have increased again in size and number. For example, Sweden increased its central bank rate from negative .35 to negative .50 percent and Japan moved its central bank interest rate into negative territory. What is also surprising is that the market has joined into the negative interest rate fray as 2-year Swedish government bonds yield negative 1.12 percent. And, recent comments by Janet Yellen indicate that even the U.S. Federal Reserve may consider negative interest rates, although the legality of such a move in the U.S. is not clear. While negative interest rates by central banks are uncommon, they are not without precedent. What is without precedent is negative corporate bond yields, which happened last week as the yield to maturity on Nestle corporate bonds went negative!