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Comment by bruce343434 | Hacker News Reader

I'm a bit of a layman when it comes to financial stuff like this. Is there any place I can go to really understand what this headline actually means and what the implications are?

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In simple words, this means you lend me 100 bucks, and you agree that I will pay you much, much later...And only 90 bucks.

Why should I do this?

Well it is very odd that you should want to do this, which is why it is notable. It means something odd is happening in the bond market. What, is up for debate.

Individuals: Your mattress is not big enough for all your cash and your neighbors are eyeing it too...

Institutions: requirements that they hold a % of their portfolio in safe assets like bonds.

Because the government provides the strongest guarantee of that money being there in the future. Banks can go bust or your money can get embezzled and so on.

In particular for larger amounts of money. Many countries have deposit guarantees for smaller amounts, so for most individuals it wouldn't make any sense to buy negative-interest bonds. For example, someone in the U.S. who wants to store $250k with a government guarantee can simply put it in an FDIC-insured bank account. I believe Germany is similar, though with a lower €100k guarantee per account. You can go a little higher by having multiple accounts at different banks (at least for FDIC insurance, the first $250k at each separate bank is covered). But if you have $10m or $100m to store, government bonds become the only practical way to get a similar level of insurance.

Because you might be running a central bank that's yield insensitive and has literally unlimited buying power. If that's not you, there's not much point.

The price of anything is what two people agree upon, right? So if you pay me 10 dollars to get 9 dollars in 30 years, that means we're betting against eachother: you think the economy is going to tank and only losing 1 dollar will be a good deal, which is of course why these bond prices worry people, because in any normal situation you'd expect some positive return on your investment, not just a small loss.

I own a hedge fund. I believe my algorithm will crush the market and return me a 20% annual yield. However... maybe it'll give me a -50% yield one year. I need a suite of zero-risk investments. A negative interest rate sounds insane, but I can't easily hold on to a billion in cash, I'm not a bank! Where am I going to put it, I can't trust Wells Fargo, my mattress is too small, Buster burned down the banana stand! Sometimes breaking even-ish is best for hedging risk.

And the implication is that bond markets don't expect our current inflation to last very long and that growth will also likely be below par for a long time.

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