Why Would Anyone Buy a Greek Government Bond?

Real interest rates in the eurozone area have been negative for a while. The proximate cause is simple: Eurozone growth is tepid and inflation is subdued, which has caused the European Central Bank to set its policy rate low as a way of stimulating the economy. The current interest rate is -0.5 percent, and once you account for inflation it’s even lower.

This has a different impact in different countries. In Germany, for example, government bond yields are literally negative. In Greece, which is not as economically stable, yields are positive, but only barely: Greek bonds still pay less than US treasurys.

I was cogitating on this the other day and wondering how this could be. The ECB can set interest rates wherever it wants, but it does no good unless people are willing to buy eurozone bonds with low or negative yields. Why, I wondered, would investors accept a lower yield on the Greek bond than on US treasurys? And why are they willing to accept the even lower yields on the bonds of other eurozone governments? It was all above my pay grade, so I googled to get an expert view. Here is Ashoka Mody:

Even if we stipulate that Greece’s government is, in fact, as creditworthy as the U.S. government, why would investors accept a lower yield on the Greek bond? And why are they willing to accept the even lower yields on the bonds of other eurozone governments?

This made me feel better. Even Mody is confused. He offers up a couple of possible reasons for this state of affairs, but concludes that they make no sense. In the end, the question stands. Why would anyone in their right mind accept a lower yield on a Greek bond than a US bond? Or even a German bond, for that matter? Treasurys are the strongest, safest investments around, and the US economy is in better shape than pretty much any European economy.

So: why does anyone buy Greek bonds? Why isn’t there a huge stampede at every auction of Treasurys? Can anyone point me to a nice, simple explainer on this topic?

THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate

We have a new comment system! We are now using Coral, from Vox Media, for comments on all new articles. We'd love your feedback.