Question 17: On 29 October Philip Lowe the RBA Governor gave a speech 'Some Echoesof Melville' in which he said: As things currently stand, the entire Swiss government nominal bond

yield curve is innegative territory. Most of the German, Dutch, French and Japanese yield curves arealso in negative territory. The Swiss government, for example, can borrow for 30years at an interest rate of -0.2 per cent. If it were to issue a zero coupon security atthis yield, it would mean that the buyer would give the Swiss government 106 SwissFrancs today and receive back just 100 Swiss Francs in 30 years' time, with no otherpayments between now and then. That is remarkable. Which of the following statements is NOT a logical reason why investors would buy Swissgovernment bonds with negative yields? Investors believe that the Swiss: (a) Exchange rate will appreciate to balance out the negative yield. (b) Inflation rate will be lower than the negative nominal bond yield, making the real yieldpositive. (c) Yields will rise in the future so bond prices will rise too, leading to capital gains which balance out the negative yield. (d) Bonds' small negative nominal yield is still preferable compared to keeping physicalnotes and coins which have zero yields but are costly to transact and secure from theft,especially for big investment funds who wish to invest billions.