Question

why zero coupon bond yields dropped so fast when coronovirus have started in March2020?

Answer 1

Zero-coupon bond are always issued at a discounted price. While the yield earned on such bonds is on their par value. The amount invested is locked in till the time of maturity.

The yield expected from the zero coupon bond depends upon the varied factors. Such as: -

· Horizon of time: - The period for which investor is investing would be a prime factor to consider the asset constituted in the portfolio.

· Limit of risk tolerance: -The ability to bear losses in the process of earning higher returns. Every investor had their willingness and capability of bearing the risk.

Further, the yield is inversely related to the price of bond. In the harsh time of pandemic people had shortage of cash and therefore they were utilizing the money invested which resulted into decreasing yield.