Germany Sells Bills with Negative Yield
Yes that's right. People are paying the goverment to hold their money for them (eg. this means I would give the government $100 to get something like $99.99 back 6 months from now).
I find this simply mind boggling. This is an indication that people have completely lost faith in the banking sytem in Europe, and have priced in very high likelihood of bank runs. This would be the only explanation for why you would ever pay someone to hold your money.
To those who are not familiar with the US FDIC insurance policy: in the case a bank begins to default from insolvency, the FDIC insures up to $250,000 for each account (basically you are guaranteed by the government to get your money back up to this amount in case of bank failure). If you are a big corporation with 1 billion dollars in cash, there is no way to ensure all your money in the case of a financial system collapse, as that would require you to create 4000 different accounts across different FDIC insured banks, which is unrealistic. Therefore they have decided to buy Treasury bills so that you are guaranteed to get your money back from the government sometime in the future.
As fear of bank failure rises, we are starting to see government bond yield begins to head into the negative territory, so people are starting to pay the government to insure their own money.
I'm trying to find out if this has ever happened before. My guess is it has not. (I did not include the instance in the US after the collapse of Lehman in 2008 as it happened after the collapse of a major financial institution, which could technically be comparable to a bank default).
Edit: to clarify some misconceptions:
The way government bonds are traded has very little to do with inflation nowadays. Some people interpret negative rates as a sign of deflationary pressure, which is not correct. Deflation leads to 0% rate, it does not make me want to pay money to you today and get less back tomorrow.
The general fear of a collapse of the financial system in Europe has made banks unreliable at holding cash beyond the typical amount the government (FDIC in the US) would insure, so wealthy individuals and corporations are buying short term government bonds and rolling them forward at maturity (these treasury bills/notes are backed by the government instead of the banks, making them much safer). The demand for govt bonds are so high such that people are willing to pay a premium (instead of receiving one) to buy them.