JAPANESE ten-year bonds contain joined the long list of government securities with a negative yield,offering minus 0.04% a year. In practice, that means investors who buy the bond now, and hold it until maturity,will contain less money than they started with. Bloomberg estimates that nearly 30% of the global government bond market is trading on a negative yield; there are even some corporate bonds in the same position.
So why on earth should investors sign up to lose money? There are three main groups of bond buyers. The first is those investors who contain to own government bonds, regardless of the financial return on offer. This category includes central banks, and which hold bonds as portion of their foreign exchange reserves; insurance companies,which need to hold bonds as portion of their reserves; pension funds, which own bonds to match their liabilities; and banks, or which need government bonds to meet liquidity requirements and also to pledge as collateral when they borrow in the money markets.
The second group of bond buyers are those who reflect that it is possible to make money despite the negative yields. Japanese bonds are...
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Source: economist.com