Japan Is Selling Bonds Guaranteed To Lose You Money : The Two-Way With the global economy in turmoil, interest rates on some government debt are falling below zero.

Japan Is Selling Bonds Guaranteed To Lose You Money

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ARI SHAPIRO, HOST:

Today, the Bank of Japan began doing something that sounds kind of crazy. It's selling a 10-year bond with a negative interest rate. That means instead of collecting interest payments, buyers will actually lose a small amount of money. As the global economy stalls, a handful of wealthy countries are selling bonds like these, and investors are buying them. NPR's Jim Zarroli explains why.

JIM ZARROLI, BYLINE: It might seem counterintuitive that someone would buy a bond that promises to lose you money, but that's what's happening more and more right now. Sweden, Switzerland, Denmark and Japan have all sold debt with interest rates that are slightly negative. Jacob Kirkegaard is a senior fellow at the Peterson Institute for International Economics.

JACOB KIRKEGAARD: If you'd asked me a year ago and said that the Bank of Japan could do this or other central banks or other government, I would have said it would have been impossible.

ZARROLI: The reason this is happening has everything to do with a slowing global economy. Right now, countries like Japan are desperate to find ways to stimulate growth. They want to keep the value of their currencies low so the products they sell are more competitive, and to do that, they want to drive interest rates as low as they can get away with. David Blanchflower is a professor of economics at Dartmouth.

DAVID BLANCHFLOWER: In some sense, this is an opening shot in a currency war. I call it currency skirmishes. But as one cuts and one goes to negative, others do, too.

ZARROLI: Over the past few years, these countries have been driving rates closer and closer to zero, and now, in some cases, they've fallen into negative territory. But why would anyone want to buy a government bond that loses money? Jacob Kirkegaard says that as stocks crash and oil prices plummet, investors are looking for places to put their money. They want to find safe havens like the U.S. dollar and gold, and debt issued by wealthy, stable countries such as Japan and Switzerland is hugely desirable, he says.

KIRKEGAARD: You want the safety of having this particular government bond, and you don't want to run the risk of being in other assets.

ZARROLI: But why put the money anywhere? Why not leave it in cash? Fed vice chairman Stanley Fischer talked about that last week in a speech before the Council on Foreign Relations, and he said essentially that big investors with billions of dollars to spread around can't just stuff it under a mattress.

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STANLEY FISCHER: If you're going to keep your billion dollars in currency, you're going to have to find a place to store it. You're going to have to pay for that. You're going to have to ensure it, and you're going to have to have it guarded.

ZARROLI: All that costs money, so within reason, big investors have shown that they're willing to take a bit of a loss to keep their money in a safe and secure place. So far, U.S. interest rates haven't gone into negative territory, but they are very low and have been falling recently, and if the economy slows too much, they're likely to fall even further. Jim Zarroli, NPR News, New York.

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