If interest rate on bonds is negative. Will individuals hold bonds or cash?

Answer 1

Why don't you spend the time to learn the concepts instead of asking the question here?

Or, you could just continue to be a lazy slacker and read on.

If you buy my negative yield bond, I will send you an invoice every month for what you owe me.

Answer 2

It would be pretty dumb to buy a bond with a negative rate or yield. You would be losing money. You might as well be purchasing assets with that money. People will hold cash. because it's value is not going away (except for inflation).

Inflation rate is about 3%. While the value of money decreases, the equivalent interest rate of a bond would be at 0%. That is clearly better than a negative rate.

Answer 3

There has in fact been two specific cases of negative interest rates. The ordinary answer of course is that no one would pay to save their money. However, that has in fact happened for two reasons.

First, in Japan, there is a law requiring banks to lend out their excess reserves every day. Since no one wanted them, the banks had to pay people to take their money. Since this was a statutory requirement they could not avoid it. Since the rate was above the deflation rate, the banks made money in real terms even though they lost in nominal terms.

The second was with the use of Squarz by Berkshire Hathaway in which lenders are required to pay Berkshire Hathaway in order to have the privledge of making the loan to them. The hidden reward was that the debt carried warrants for Berkshire stock. This being the case, the negative rate was really a positive rate on the loaned money minus options premiums.

Since both are distorted and involuntary exceptions, they should be ignored except as historical footnotes.

Answer 4

Bonds still pay something. Something is better than nothing. some bonds such as municipal bonds give you a very good tax break sometimes that tax break is better than the interest you would make because you still keep to hold on to your money.

Answer 5

This is one of the most absurd and utterly st*&^@ question i have ever read under economics.