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US Sells Bonds With Negative Interest Rate

Entrance to the Federal Reserve building in Washington (file photo)

The U.S. government, for the first time, has sold bonds that have a negative rate of return, as investors seek protection against the threat of inflation.

The government sold $10 billion worth of the bonds Monday. Investors paid $105.50 for every $100 of bonds they bought, effectively agreeing to pay the government for the privilege of lending it money. The investors still hope to make money on the bonds, however, because they offer a guarantee against inflation, which some economists believe could rise sharply in the U.S. in the next year or so.

The U.S. central bank - or Federal Reserve - has indicated that it may soon pump hundreds of billions of dollars into the economy by buying U.S. government securities. That might help reinvigorate the sluggish U.S. economy, spurring consumer spending and cutting the unemployment rate. Nearly one in 10 U.S. workers does not have a job.

But such a move by the central bank could also increase the rate of inflation. In that case, the value of the bonds bought by investors now, would increase.

About 40 percent of those who bought the bonds are foreign buyers, 57 percent are dealers and the rest possibly retail investors.

Some information for this report was provided by Bloomberg.