Suppose Germany issues a -2% yielding debt Maturing in 5 years, at par
Will it have a duration more than a 2% yielding debt, issued at par, maturing in 5 years?
Wondering, coz negative yield should mean coupons should now be paid by bond holders, and cash flows will be negative except for repayment if intial investment.
Hie does it change if the bond was issued at a premium/discount? Has anyone tried excel to see through these?
You’re correct that the (Macaulay, modified, effective) duration of a bond yielding −2% will be higher than the (respectively Macaulay, modified, effective) duration of an otherwise identical bond yielding +2%. All else equal, when yield decreases, duration increases. You learned that at Level I.
Note, however, that a bond yielding −2% probably has a positive coupon rate and is simply issued at a price (considerably) above par.