Switzerland has become the first country to sell ten-year government bonds with a negative interest rate. In an auction last week, the Swiss Federal Treasury sold debt maturing in July 2025 at a yield of -0.055%.
While Swiss ten-year bonds have been trading in the secondary market at negative yields since the end of January, this was the first time that they had been initially issued with negative yields.
Being paid to borrow money may sound like a good thing, but it implies that investors believe there is a strong chance of deflation. It also reflects the strength of the Swiss franc, which is making life difficult for exporters.
Foreigners may choose to buy bonds with negative yields even though this guarantees they lose money on the bond, because they believe they will make it back through currency appreciation.