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 Greeceā€™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?

We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

payment methods

We've never been very good at being conservative.

And usually, that serves us well in doing the ambitious, hard-hitting journalism that you turn to Mother Jones for. But it also means we can't afford to come up short when it comes to scratching together the funds it takes to keep our team firing on all cylinders, and the truth is, we finished our budgeting cycle on June 30 about $100,000 short of our online goal.

This is no time to come up short. It's time to fight like hell, as our namesake would tell us to do, for a democracy where minority rule cannot impose an extreme agenda, where facts matter, and where accountability has a chance at the polls and in the press. If you value our reporting and you can right now, please help us dig out of the $100,000 hole we're starting our new budgeting cycle in with an always-needed and always-appreciated donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly 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