The Greater Fool

I have heard repeatedly people say they can’t fathom how anyone would lend money to a government for a negative interest rate. This is true only if they keep the bond to maturity, and they have no intention of doing so! If investors expect future interest rates to become even more negative, then the value of their existing bond, on the open market, will gain a premium over YTM. This is simply the “Greater Fool Theory” and is exactly the same as investors in the housing market expecting to flip their houses for ever greater prices, no matter how over-priced they are already.

Categorized as Economics

By Kyle

sentient being 3rd planet around Sol. Milky Way

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