Did you know that the U.S. Treasury has sold $1 trillion (yes, trillion with a T) dollars worth of Treasury bills that pay no interest? Why would anyone lend out his or her money without charging interest? One answer might be because the alternatives seem worse. In fact, for a brief moment in 2008 investors were willing to earn negative interest and actually pay for a U.S. Government guarantee to get back less than they put in!
To understand the alternatives you have to realize that the people who do this are not mom and pop investors. They are the huge players who round to the nearest million and deal in billions of dollars. They don’t have the option of putting their money under the mattress.
These people don’t deal in physical dollars, so when they raise cash it has to go somewhere else. Not doing something with their money is not an option. When both stocks and bonds are going down, the only relatively safe haven is the U.S. Treasury market, and the safest part of that market is short-term Treasury notes. When there is not a big enough supply of notes but you need to buy anyway, you accept a negative interest rate.
Of course, individual investors have been willing to leave their “safe” money in money market accounts paying virtually zero percent for several years now. That’s a rational decision since literally putting your money under your mattress or burying it in the back yard leaves you vulnerable to thieves and robbers. But it may make the smaller investor feel better that the “big boys” with their billions are sometimes worse off than the retail investor when it comes to finding a safe haven.