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Keep in mind Modern Portfolio Theory, in which we measure the total return of a portfolio, not just the individual components. A huge number of retirement plan

Keep in mind Modern Portfolio Theory, in which we measure the total return of a portfolio, not just the individual components. A huge number of retirement plans and endowments and pension programs will still hold negative yielding bonds, because they need to diversify their assets. In theory those safe government bonds will shoot up in price just as equities crash. Because these assets aren’t correlated, your long term return will actually be higher. So, yes, that is probably worth paying a bit of money for.

SilasX 7y ago
Is that really true when the yield is negative though? Wont investors just, like, go into checking accounts or safe deposit boxes when they need to flee to safety?
- surfearth 7y ago
  For large institutional investors, government-backed securities can be safer than bank accounts, given that they need to invest sums that are much larger than deposit insurance (e.g. FDIC) limits.
- myroon5 7y ago
  Recent related story titled: Safe Deposit Boxes Aren't Safe (nytimes.com) https://news.ycombinator.com/item?id=20545276 https://news.ycombinator.com/item?id=20545276
- mruts 7y ago
  Holding cash almost always has a pretty bad negative rate, i.e inflation. Real rates of bonds might be negative, but they should always be bigger than inflation.
  - tempestn 7y ago
    The "real rate" is the rate after inflation. It can't be both negative and bigger than inflation.
    - wutbrodo 7y ago
      The idea is that for cash, the nominal rate is zero, so the real rate is (-inflation). Whereas for negative-real-rate bonds, the real rate is (r - inflation). Since r < inflation this is negative, but since r > 0, the magnitude is still below inflation. The parent comment was maybe being slightly imprecise, but his core point isn't wrong that positive nominal rates means that your losses are less than inflation (whereas for cash they're equal to inflation).
      - kgwgk 7y ago
        But that misses the point that one can have negative (nominal) yields which give you very negative (real) yields. So it's not true that "they should always be bigger than inflation."
        mruts 7y ago
        What's the notional value of all negative nominal yield bonds? Surely it can't be that much? Though, if you expect rates to go ever lower, I guess you could argue that a negative nominal yield bond could be a good investment.
        kgwgk 7y ago
        $13 trillions. I don't know if that's "much" for you, though. https://www.bloomberg.com/graphics/2019-negative-yield-debt/ https://www.bloomberg.com/graphics/2019-negative-yield-debt/
        wutbrodo 7y ago
        Right, it requires nominal r > 0. I think the parent comment point was that violating that condition is rare, but as you point out below, apparently it isn't.

SilasX 7y ago

Is that really true when the yield is negative though? Wont investors just, like, go into checking accounts or safe deposit boxes when they need to flee to safety?

surfearth 7y ago
For large institutional investors, government-backed securities can be safer than bank accounts, given that they need to invest sums that are much larger than deposit insurance (e.g. FDIC) limits.
myroon5 7y ago
Recent related story titled: Safe Deposit Boxes Aren't Safe (nytimes.com) https://news.ycombinator.com/item?id=20545276 https://news.ycombinator.com/item?id=20545276
mruts 7y ago
Holding cash almost always has a pretty bad negative rate, i.e inflation. Real rates of bonds might be negative, but they should always be bigger than inflation.
- tempestn 7y ago
  The "real rate" is the rate after inflation. It can't be both negative and bigger than inflation.
  - wutbrodo 7y ago
    The idea is that for cash, the nominal rate is zero, so the real rate is (-inflation). Whereas for negative-real-rate bonds, the real rate is (r - inflation). Since r < inflation this is negative, but since r > 0, the magnitude is still below inflation. The parent comment was maybe being slightly imprecise, but his core point isn't wrong that positive nominal rates means that your losses are less than inflation (whereas for cash they're equal to inflation).
    - kgwgk 7y ago
      But that misses the point that one can have negative (nominal) yields which give you very negative (real) yields. So it's not true that "they should always be bigger than inflation."
      - mruts 7y ago
        What's the notional value of all negative nominal yield bonds? Surely it can't be that much? Though, if you expect rates to go ever lower, I guess you could argue that a negative nominal yield bond could be a good investment.
        kgwgk 7y ago
        $13 trillions. I don't know if that's "much" for you, though. https://www.bloomberg.com/graphics/2019-negative-yield-debt/ https://www.bloomberg.com/graphics/2019-negative-yield-debt/
      - wutbrodo 7y ago
        Right, it requires nominal r > 0. I think the parent comment point was that violating that condition is rare, but as you point out below, apparently it isn't.