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Who Buys Bonds With A Negative Interest Rate?


A strange thing is happening in the global economy - lots of countries are selling bonds with negative interest rates. In other words, the people buying these bonds are guaranteed to lose money if they hold on to them. Jacob Goldstein from our Planet Money podcast wanted to know why would anyone buy these.

JACOB GOLDSTEIN, BYLINE: Negative interest rates started with central banks in Europe and Japan. Today, they've spread to government bonds in lots of countries - Switzerland, Germany, France, Japan. You buy a bond for, say, $100 today, and the government will give you, say, $99 a year from now, an interest rate of negative 1 percent. Who hears this pitch - you will lose money - and says I'm in? Who buys these? Rick Rieder, head of global fixed income at BlackRock.

Do you own any bonds that are paying negative interest rates?

RICK RIEDER: Yes. Yes is the answer.

GOLDSTEIN: (Laughter) I feel like that was about to be yes but or something.

RIEDER: Yeah. So yes but is exactly right.

GOLDSTEIN: Yes but he doesn't like it.

RIEDER: It just feels surreal, and it feels that it's not natural buying negative-yielding bonds.

GOLDSTEIN: Of course, it's not natural. People with money want to make more money. They want to invest in things that'll grow. But in a lot of the world right now, they're scared to risk their money, to bet on some strong economic recovery. So they're buying bonds with negative interest rates. They're afraid if they invest in something riskier, they'll lose even more.

You could just put your money in the bank. But in a lot of places where rates are negative, people who want to put a lot of money in the bank have to pay a fee. Rates are negative there, too. Guy Miller works at Zurich Insurance, which owns some of these bonds. I asked him if the bank's charging you a fee, why not just put your money in a vault?

GUY MILLER: The issue with that is that that doesn't come cost-free. You have to have some kind of insurance or some kind of guard over that. And given the amount of money you're talking about, you know, volume-wise, it could take up a fair amount of room.

GOLDSTEIN: Big companies like Zurich Insurance have billions of dollars. Miller's saying you're going to need a big vault. You got to pay for the vault. You got to pay for security. So even there, you're paying to hold money.

Still, this is actually something companies might start doing. Earlier this year, a big German insurance company said, as an experiment, it pulled 10 million euros out of the bank and, yes, stuck it in a vault. Rick Rieder of BlackRock told me that it is possible to make money buying bonds with negative interest rates.

RIEDER: Yes, and we actually bought Japanese bonds two to three weeks ago.

GOLDSTEIN: Since then, people have become even more eager to buy bonds with negative rates. Rieder could sell them today for more than he paid.

Are you going to sell them for a profit?

RIEDER: Absolutely.

GOLDSTEIN: He didn't want to tell me the details, but you can think of it this way - he bought a bond for $100 with the promise of getting paid back $99. Today, people will buy that same bond for $101. Jacob Goldstein, NPR News. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Jacob Goldstein is an NPR correspondent and co-host of the Planet Money podcast. He is the author of the book Money: The True Story of a Made-Up Thing.
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