Right now I can get a 1yr government bond that yields 0%. Is there any reason to buy such a bond? E.G. If the broker holding my accounts goes out of business is my "perceived low risk portion" of my portfolio any safer in a government 0% bond than it is in a money market account held by my broker?


0% bonds are desirable for some individuals. It depends on your situation. 0% bonds are usually sold well below par value (eg a 100$ face value bond for 2020 might sell for 90$ today) Hence, your gains will be CAPITAL GAINS. A similar investment paying interest would be taxed as INCOME, and smaller portion of capital gains. In many countries (US, Canada) Capital gains are taxed at a more favourable rate then income. This is especially true when holding these investments in corporations.

  • The question stipulates a zero-percent YIELD bond. Which should mean it's selling above par value if it has a non-zero rate (as government bonds tend to). – Matthew Oct 2 '14 at 23:02
  • you are confusing yields and coupon rates. It does not say that these are zero coupon bonds just that they have a yield (probably YTM) of 0%. At the correct price a zero coupon bond could have zero yield but shouldn't under "normal" market conditions. – MD-Tech Dec 18 '14 at 16:58

No, there isn't.

There are a number of reasons that institutions buy these bonds but as an individual you're likely better off in a low-yield cash account.

By contrast, there would be a reason to hold a low-yield (non-zero) bond rather than an alternative low-yield product.

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