JAPANESE ten-year bonds have joined the long list of government securities with a negative yield, offering minus 0.04% a year. In practice, that means investors who buy the bond now, and hold it until maturity, will have less money than they started with. Bloomberg estimates that nearly 30% of the global government bond market is trading on a negative yield; there are even some corporate bonds in the same position. So why on earth should investors sign up to lose money? There are three main groups of bond buyers. The first is those investors who have to own government bonds, regardless of the financial return on offer. This category includes central banks, which hold bonds as part of their foreign exchange reserves; insurance companies, which need to hold bonds as part of their reserves; pension funds, which own bonds to match their liabilities; and banks, which need government bonds to meet liquidity requirements and also to pledge as collateral when they borrow in the money markets.

The second group of bond buyers are those who think that it is possible to make money despite the negative yields. Japanese bonds are denominated in yen. Foreign investors might be happy to own the bonds if they think the yen is going to rise; indeed the yen jumped from 121.6 to the dollar on January 29th to 114.9 by February 9th. A big currency gain would more than offset the negative yield. Greek investors might be happy to own negative-yielding German government bonds if they feared their country might exit the euro. Domestic investors might also buy their own government's negative-yielding bonds if they expected a prolonged period of deflation. They could still make money in real terms (that is, they would be able to buy more goods and services with their savings), even if they lost in nominal terms.

The third source of buying comes from anxious investors who prefer a small loss on government bonds to a much bigger loss elsewhere. European equities are almost 20% below their levels of a year ago; commodities have plunged in price; the default rates on corporate bonds are rising. Banks that hold money with central banks in the euro zone, Denmark, Japan and Sweden all receive negative returns. Fear makes government bonds appear a haven from turmoil, even when their return is negative.