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I read recently that France is selling bonds at Negative Interest Rates. I understand why this is beneficial for France, but why in the world would I pay money to let someone hold my money?

share|improve this question… would be another example of a negative interest rate that sold quite well actually. – JB King Sep 1 '15 at 0:21
up vote 22 down vote accepted

The simple answer: Because you believe every other option can yield greater losses...

So the thinking is; Lend it to France you'll get your money back. Put your money in a bank and there's a chance you won't get it back if the bank goes bust.

Investors also believe that rates will continue to go more negative, in which case they will actually MAKE money. It's a momentum play which will eventually reverse but since the Bond market is extremely liquid, it's a bet that can quickly be unwound.

Another theory floating around is that if the weaker countries of the euro leave (e.g. Greece, etc) and the core keep the euro, then the value of the euro will actually rise. So by putting your money in French or German bonds you would also be securing cash in French or German euro's. - Thinking the unthinkable on a euro break-up - Gavyn Davies

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Great analysis, thanks! – C. Ross Jul 9 '12 at 19:34
This is a good answer in general, but I take reservation against the unqualified "the Bond market is extremely liquid". Tell that to those who bought Greek government bonds a while back and then found the market for those basically freeze up. – Michael Kjörling Jul 10 '12 at 8:00
@MichaelKjörling the Greek bond market didn't "freeze up" anyone who bought/is buying greek bonds can easily go to the market and sell them... But yes in theory any market can become illiquid. However the question is about French bonds which is far from illiquid. – Kirill Fuchs Jul 10 '12 at 12:42
Are banks in France really that weak? And are bank deposits in France not insured? – AxiomaticNexus Apr 27 '15 at 20:51
@yasmanillanes it was a general answer with an example for that time period, which was 3 years ago... I wouldn't take any example as current news, in this answer and in SE in general. – Kirill Fuchs Apr 27 '15 at 21:08

The only reason I can think of would be if you were convinced that you couldn't hold on to your money. Treasury Bonds are often viewed as very safe investments, and often used in some situations where cash isn't appropriate.. Also, they typically have a somewhat patriotic theme, helping your country to grow. In addition, many people don't really pay attention to the rate of the bonds, but are just investing in them. The more people investing in them, the lower the yields become.

But the bottom line is, I would invest in a savings account any day over a negative interest rate... And it looks like I'm in good company as well, a quick study of reports seems to indicate that these are a very bad investment...

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"Bonds traditionally are viewed as even safer than cash" - that is false. Traditionally bonds are NOT viewed safer then cash. – Kirill Fuchs Jul 9 '12 at 19:44
Good point, I've fixed it in my edit. – PearsonArtPhoto Jul 10 '12 at 5:38

Savings accounts have limitations in case a bank goes belly up and you have a higher amount in the account (more than the insured amount). Mostly big corporations or pension funds cannot rely on a bank to secure their cash but a government bond is secured (with some fine print) and hence they are willing to take negative interest rates.

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The average joe wouldn't... we would bury our cash in a mayonaise jar before we would take a guaranteed loss... (although the argument could be made that a positive return that doesnt outpace inflation IS a negative return)... big corporations with billions on hand dont have that luxury however... some investments may also guarantee investors that a certain percentage be allocated to bonds... and in times of deflation a negative return could still provide a net positive return...

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Possibly you could use it as a hedging instrument if it's correlated in some way with another asset you're holding. Even though it seems you're losing money with such a bond, that loss might be less than the hedging costs associated with other instruments.

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