Have you ever taken out a loan and the bank offered to pay you interest on it? The chances of that happening to an individual are slim to none, but some European countries are pulling off exactly that.
Switzerland for example just borrowed money for 10 years from institutional investors for a negative 0.055 percent. This means that every year investors pay Switzerland one-twentieth of a percent to enjoy the honor of holding its debt. Germany and Denmark are other countries whose bonds sometimes trade at negative yields. Why?
Yield of the Swiss 10-Year Bond:
source: tradingeconomics.com
First, it’s about deflation, or the phenomenon of falling prices.
Even if you pay 1 percent to LEND money every year, you make money in real terms if prices fall by more than 1 percent on average. If you lend 100 and get back 99 but you can buy goods worth 105 previously, you are better off.
