Before we proceed to 10 countries with the highest 10-year bond yields today, let’s take a break and explain what those bonds actually mean.
Said in the simplest way, bonds are links and the financial support between the government and the regular residents or companies. The process is rather simple. Government set the bonds that can be bought by people or companies. In case people or companies decide to give a certain amount of money for them, they are practically lending money to the government. In return, it is expected for them to protect their money from inflation and also obtain some incomes.
The most frequent bonds are the ones with periodic interest payments and the return of the initial ‘loan’ after the bond reaches the full maturity or, said a bit simpler, expires. For example, if a person or a company buys a bond for $1,000, this means that the person or a company lends that money to the government. If we take that the annual coupon rate is around 5% and this would be $50 per a year for that person or a company in return. The government’s plan is to repay back the full amount to that person or a company until the bond reaches the maturity. This way, the government gets the higher amount of money in the time of need and can pay the residents back with smaller amounts, while residents don’t have to worry about the full bankruptcy. Sure, we are usually talking about higher investments, but we took these numbers to make it easier to understand.
The initial investor doesn’t need to be striped with this bond until the maturity. There is one more catch. In case the initial investor wants to wash his hands from this, he or she can easily sell it for a smaller amount of money. As an example. The initial bond of $1,000 can be sold for $800 later (like a second-hand store, when you think of it). The second buyer will, in this case, have the higher rate of return (6.25%). Still, this doesn’t mean that the new bond owner will have the exact amount that the initial buyer would make since he didn’t invest as much money and he will end up with the amount of money he or she invested. In this case, that would be $800.
The amount of money a man can invest depends on the country. Usually, financially stronger and more stable countries are giving the lower bonds. And who gives the highest? These 10 countries with the highest 10-year bond yields today.
