Market Commentary

Bonds and the Yields

zero-coupon bonds

This week the U.S. government issued four-week bonds with zero percent yields. So if you bought them lending the government your money for a month you get nothing for it. We live in interesting times.

Do not confuse this with zero-coupon bonds which are a different kind of bond asset. A zero-coupon bond is a debt security that does not pay interest or yield but instead, it is bought at a discount and then provides the yield/profit at maturity. It is at maturity that you get the full face value of the bond.

Bonds are nothing more than a loan. A buyer of a bond loans money to the issuer of the bond. There has always been a cost of this transaction to borrow. Only in recent years has such a thing as no interest or yield on bonds have been possible. The only reason it existed today is that the government is forcing buyers to buy.

This can not last. Interest rates will rise because no one will lend money for nothing forever.