"Bond King" Bill Gross did not mince words when warning about the potentially dire consequences of negative interest rate policies around the world. Gross fundamentally believes that negative rates could lead to a credit bubble, with massive damages to bondholders.
Negative interest rates have been adopted by stunted economies in Japan and parts of the eurozone in a bid to promote spending where more conventional policies have failed. The policy effectively causes bondholders to pay the issuer if they hold it to maturity. But demand for the bonds is still growing. That’s because there are positives to buying bonds with negative interest rates—they generally promise lower risk. Banks in the euro currency bloc are also piling in as a result of higher capital requirements. And since yields have an inverse relationship to price, demand has helped push down yields.