Interest rates on some European government bonds have gone negative

<i>&quot;And yet it seems the impossible has happened.&quot;</i><p>This is a great example showing how little we understand economics, which is very ironic: economics is the study of something that is 100% man-made, yet we cannot explain many of its aspects. Heck I am more confident in physicists able to explain physics, and mathematicians able to explain mathematics, than in economists able to explain economics. This is why topics such as basic income guarantee [1], Bitcoin and cryptocurrencies, inflation vs deflation, capitalism vs socialism, etc, are all so debated. Nobody agrees on anything because quite frankly, we don&#x27;t know how to make the economy work optimally. I would not be surprised if, 50 or 100 years from now, widely accepted views on economics will completely change.<p>[1] There was a great HN post from yesterday: <a href="https://news.ycombinator.com/item?id=9004287" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=9004287</a>

This should be no news to consumers who have been accustomed to parking their money in negative bonds. These are called &quot;checking and savings accounts&quot;, where interest is next to nonexistent, and the balance is nibbled away by various fees.<p>People still put their money in the bank for similar reasons why people buy these negative interest bonds: for example, it&#x27;s secure, and cheaper than building your own safe, putting cash in it, and guarding it.<p>If you want to hold some foreign currency, you could just buy it and have it sitting in a trading account. But there are perhaps some fees involved which are worse than parking it in a negative bond. The account may also not be secured compared to a bond.

One thing they don&#x27;t mention as a cause is regulatory requirements to hold certain classes of sovereign debt or other &quot;risk-free&quot; securities, for instance as collateral.

A lot of this is also frontrunning the central banks. The ECB has already indicated they will buy german bonds (which have negative yield). Rates can (and will) go even negative-er, so if you buy now and sell later, you still make a profit.

Thanks for changing the title, I always just err on the side of leaving it, even if it is absolutely terrible (as this one originally was).<p>On the actual topic, it&#x27;s always interesting to see things go differently than economists expected. I fill an economist-ish role at work and it&#x27;s kind of amazing to see the union of hand wavey-ness and certainty that pervades so much of the field. We drill down hard on data and stick with open source tools like Python as much as possible, but I definitely look around and see supposition treated as fact.

I can&#x27;t shake the feeling we&#x27;re going to see another black swan in &#x27;15 or &#x27;16. Maybe the epicenter will be Greece this time instead of Bear Stearns.<p><a href="http://i.imgur.com/UyM0j2M.jpg" rel="nofollow">http:&#x2F;&#x2F;i.imgur.com&#x2F;UyM0j2M.jpg</a><p>I&#x27;m curious to see what the Fed will do if we have a correction while interest rates are at zero. I suppose 0% + QE will become standard policy rather than a response to a crisis.

US Treasury yields went negative in 2008 ...<p><a href="http://www.nytimes.com/2008/12/10/business/10markets.html" rel="nofollow">http:&#x2F;&#x2F;www.nytimes.com&#x2F;2008&#x2F;12&#x2F;10&#x2F;business&#x2F;10markets.html</a><p><a href="http://blogs.wsj.com/marketbeat/2008/12/09/three-month-bill-yield-goes-negative/" rel="nofollow">http:&#x2F;&#x2F;blogs.wsj.com&#x2F;marketbeat&#x2F;2008&#x2F;12&#x2F;09&#x2F;three-month-bill-...</a>

Economists also thought stagflation was impossible before the USA in the late 70s.

Europe&#x27;s economy is in a very bad place

I&#x27;m not sure this article gets the definition of the zero lower bound right (though I&#x27;d love to be corrected if it does.) As I understood it, the ZLB only applies to central bank lending rates to other banks, which if they become negative the other banks only have the incentive to hoard cash.

Could someone buy one of these negative bonds in hopes to short sell it? I barely understand shorting, but it seems like this would be an opportunity (I realize shorting is always risky).

Certain corporate baonds have as well. Notably, Nestle&#x27;s are negative.