More on Interest Rates and Time Preference

In a recent column for Mises Wire, Doug French raised very important issue of negative interest rates. Quoting Fleckenstein Capital He wrote,
Yesterday a Parisian BBB-rated company (i.e., quasi junk) issued $500 million in three-year notes yielding negative 0.026%. We have been peppered with so many absurdities, nothing seems absurd anymore…
French continues with his own observations:
[The French utility company] Veolia Environnement S. A. floated 500 million of debt, rated just 2 notches above junk, with a three year maturity priced to yield negative 0.026%. As Grant’s Almost Daily writes, ‘Even better: Investor demand for the Veolia issue was such that the offering was oversubscribed by more than 4:1. Said another way, three out of four investors who wished to lose money on a yield-to-maturity basis were left disappointed.’
Clearly, this supposedly contradicts the view of important thinkers such as Mises and Rothbard that individuals always assign a greater importance to present goods versus future goods (i.e.. that interest rates must be always positive). This is also known as a positive time preference.
Before attempting to reconcile the apparent contradiction of the facts of reality and the positive time preference theory of interest let us have a look at the essence of this theory.

This post was published at Ludwig von Mises Institute on 12/02/2017.