According to this news article, USD10 trillion has been put into negative-yielding long-term government bonds.


Why don't these investors transfer funds into short-term positive-yielding government bonds instead? It is still the same government, so the risk should be the same. In fact, the risk of default is lower since the bonds are held for a shorter period. Lower risk, higher yield, why not invest in them?

I have no finance background. But my common sense tells me that investing in bonds that are guaranteed to lose money over a multi-year (some extending to 10 years) period is stupid. Yet, it cannot be a stupid move since USD10 trillion is a huge sum of money that is controlled by professional, institutional investors who must be smarter than retail investors like me.

Can someone explain what are the reasons behind this seemingly "stupid" investment? I am totally baffled by "smart" money.

2 Answers 2


For the same reason that some investors buy long-term bonds when the yield curve is inverted but positive: They expect that short-term rates will decline enough to make locking in the current long-term rate a good deal. Negative rates can't be very far below zero, because they compete with holding physical currency. But they can exist because currency does have some storage and insurance costs. So a very slightly negative-yielding long-term bond might be the best investment if the short-term bond, after a roll-over or two, may have an even more negative yield.

  • 1
    The yield curve for Germany is actually not inverted; the yield on bonds up to 4 years is flat at roughly -0.5%, while the 10-year yield is -.02%. So the short-term rates just need to stay constant for buying the 10-year to work out.
    – DanTilkin
    Mar 26, 2019 at 15:33

From a different article about the same subject:

Buyers of bonds with yields below zero are generally central banks trying to promote growth and pension funds and other institutions looking to balance risk. Retail investors are not part of that group.

So the investors buying these bonds are not retail investors, they are central banks that enact government monetary policy by buying bonds, and pension funds that manage other risks and may not be concerned about the yield of these bonds.

Why don't these investors transfer funds into short-term positive-yielding government bonds instead?

What makes you think that there are shorter-term bonds with higher interest rates? Yield is not just about default risk - it's also about the expected future of interest rates.

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