Why Investors Are Buying $12 Trillion in Negative-Yield Bonds

But it’s not just institutions that are buying into negative-yield bonds – retail investors are, too. And there are several reasons why…
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First, someone might buy a negative-yield bond to profit from a rising currency. For instance, an investor in Switzerland might buy a German one-year Treasury bond because they think the euro will appreciate against the Swiss franc. Since the Swiss investor’s home currency is lower in value, a big enough gain in the euro would offset the negative yield.
Second, anxious investors might prefer to take a small loss on government bonds than bigger losses elsewhere. This mostly pertains to Europe, where negative interest rates have often compromised traditional outlets for money, like savings accounts. For instance, a smallcommunity bank in southern Germany is now charging a fee of 0.4% on deposits of more than 100,000 euros in accounts. This was in direct response to the European Central Bank’s negative-interest-rate policy.

This post was published at Wall Street Examiner by Cameron Saucier ‘ August 25, 2016.