In an interview with CFA Institute, Vineer Bhansali had a two-pronged answer to the question “Is there really anything wrong with negative yields?” Stating there’s nothing fundamental about negative yields, Bhansali gave the example of money transfers in the E.U., where they’re not able to transfer money in the traditional way of taxation, but rather transfer money from the “savers” in core European countries to the peripheral countries such as Greece. Because it achieves some political objective not otherwise possible, there’s nothing wrong with it. However, Bhansali asserted, that kind of wealth transfer changes the calculus of finance, where investment requires returns. Hence, a negatively yielding bond disrupts a fundamental principle: the time value of money.

Bhansali says his perspective has shifted over time, from looking at it solely from an investor’s perspective to seeing it why it might be required in the current environment where the dynamic is still evolving. 20% to 25% of the current fixed-income market is negatively yielding, the equivalent of $20-25 trillion of negatively yielding bonds, and its stickiness isn’t going away anytime soon.

Because there’s no historical precedent, central banks are trying to figure it out as they go along. Bhansali says that we’ve reached a point now where it’s difficult to go back to models and approaches to finance that were the norm even just 30 years ago. So the traditional thinking that yields cannot go negative just doesn’t hold anymore. There’s an intersection of politics and big government now in finance, and Bhansali believes that will be the “natural state of affairs going forward,” and that we must adapt as the system changes.