The German 10-Year Government Bond Yield hit negative territory yesterday. This means that investors actually pay Germany to borrow their money; Germany doesn’t pay interest, but it actually gets paid to borrow money. The same thing is happening in Japan.
Why would investors take a negative yield, or pay somebody to borrow their money? B/c there is nowhere else to invest money safely.
“Investors” include pension funds, hedge funds, mutual funds, index funds, insurance companies, banks, governments and individuals. These entities have trillions and trillions of dollars to invest and there are not enough investments in the world to absorb all these dollars.
So investors park money wherever they can in order to ensure they can safely recoup it in the future, even it means taking a negative yield.
This helps the real estate market in a couple ways. The enormous demand for bonds keeps rates very low, making real estate leverage that much cheaper. And, when investors (at all levels) are awash in cash and looking for a place to park money, real estate becomes another relatively safe haven investment.
This bodes well for real estate overall, at least in the near term.
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