Question: I cannot comprehend the below paragraph, could you please help me explain the meaning of this paragraph in simple language? Negative yields could also be
I cannot comprehend the below paragraph, could you please help me explain the meaning of this paragraph in simple language?
Negative yields could also be a consequence of the ecology. Choosing to not own these bonds as an active allocation decision can (even with good cause due to their negative yields) carry risk for certain investors. The potential for higher tracking error to their benchmark or underperformance versus their peers. That is, as government bonds have an increased representation in many bond indexes that are used as benchmarks, holding these bonds to stay close to the benchmark also carries a cost. And this cycle reinforces itself: as continued investor demand meets fewer new bonds available to match indexes, investors may have to accept this cost in order to manage risk versus their benchmarks.
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