Some Investors Actually Make Money on Negative-Yielding Debt
Currency trades give managers an edge.
Meet Kokusai Sensei, the “government bond teacher’’ of Japan. The Finance Ministry created the character to promote bond sales.
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Money managers at BNY Mellon and Pacific Investment Management Co. have snapped up Japanese bonds. Both companies have made the country the second-largest geographic allocation in some of their biggest international fixed-income funds. Ordinarily that wouldn’t seem remarkable, but right now many of Japan’s government bonds have a negative yield—it actually costs money to hold them to maturity.
BNY Mellon and Pimco aren’t alone. Investors from outside Japan more than doubled purchases of the nation’s debt in July. What’s the logic? It turns out that buying Japanese bonds can pay better than holding U.S. Treasuries, as long as you happen to be a dollar-based investor and hedge your exposure to currency swings.