Question

Discuss six possible reasons why investors would buy treasury bonds with negative rates

Answer 1

Six Possible Reasons investors would buy treasury bonds at negative rates

1. Deflation outlook of investor is greater than the current negative rates which will still give them the ability to buy more goods and services at future date even though current investment is at negative rate.
2. Investors believe that other asset classes will yield more loses than the negative rate
3. Since treasury is a safe haven asset, there is an expectation that these negative interest rates could turn more negative in-case of an economic turmoil.
4. Insurance, Pension funds & banks need to own these bonds to meet liquidity requirements.
5. Though the return may be negative, investors find opportunity to invest in these bonds to take advantage of the yield curve
6. Foreign investors invest in expectation that the currency appreciation would be greater than the negative rates.

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