Currently, the Economist has estimated that there are nearly $16 trillion of bonds that are carrying negative yield. Here are four reasons why people tend to buy negative yield bonds.

a) Institutions like insurance companies, endowments, pension funds are required by law to invest a minimum corpus in government bonds. These institutional investors will have to necessarily invest in these government bonds even if they carry negative yields.

b) You will be surprised but active investors also buy negative yield bonds. At the end of the day, what matters is real return (return net of inflation) and not nominal returns. If the investor expects further fall in inflation and the economy slipping further into deflation, then negative yield bonds would still give positive real yields.

c) Traders buy negative yield bonds betting on a further fall in interest rates. Look at how the ECB has just cut rates from (-0.40%) to (-0.50%). If the expectation is that the ECB may cut rates lower, then buying a negative yield bond can still be profitable.

d) There is also an interesting currency game. This is applicable to countries like Japan, which run current account surpluses. There is a strong demand for Japanese government bonds although they carry negative yields due to the strength of the Yen. The Japanese Yen has appreciated consistently against most currencies in the last few years due to safe haven buying of Yen. This may impel investors to buy Japanese Yen Bonds to benefit from currency appreciation despite negative yields.

So there are enough investors and traders that are still willing to buy negative yield bonds even in these market conditions.