In more and more countries, investors are paying the government for the privilege of owning its bonds. It's usually the other way around.
The yield on Germany's 10-year government bond fell into negative territory for the first time ever on Tuesday, as worries build that the United Kingdom could decide to leave the European Union next week.
Interest rates on government debt also fell in other countries, such as Japan and the United States, after new polls indicated that support for a so-called Brexit is stronger than previously thought.
The yield on the 10-year U.S. Treasury note approached an all-time low, and U.S. stock prices fell for a fourth straight day.
The prospect of a Brexit has rattled investors, who worry that a decision to leave the EU would send the value of the British pound falling and cause problems for some of Europe's biggest banks. British Prime Minister David Cameron has also warned that the impact of leaving the EU could hurt the British economy and be felt throughout the Continent.
"People are looking for safety. They're looking for places to park their money," says David Blanchflower, professor of economics at Dartmouth.
By dipping into negative territory, albeit slightly, Germany joins a small club of wealthy, developed countries, including Denmark, Switzerland, Japan and Sweden, that are essentially able to borrow money from investors and then charge them to do so.
"We have some countries — the most notable ones are in Europe — where the investors are willing to buy bonds that have a negative yield. So you don't get compensated for putting your money into these bonds. It's like paying a little tax if you like," says Simon Johnson, professor of global economics and management at the Massachusetts Institute of Technology, and a senior fellow at the Peterson Institute for International Economics.
Such countries have benefited from investor fears about the state of the global economy. Growth has been anemic in many wealthy countries, and is slowing in China and other places. As they often do, investors have responded by fleeing to the safe havens of government debt.
"The fundamental facts of Japan and much of the euro area are that growth is disappointing. Growth is low. Investors do not feel there are attractive places to put their money, with good returns at reasonable risk," Johnson says.
As demand for these bonds has surged, interest rates have fallen.
KELLY MCEVERS, HOST:
Something remarkable happened in the bond market today. I know, the bond market. Just stay with me here. The yield on the 10-year year bond issued by the German government fell into negative territory for the first time. And here's what that means. If you bought one of the bonds and held onto it, you would actually lose money over time.
NPR's Jim Zarroli reports the drop in rates shows the growing nervousness about where the global economy is headed.
JIM ZARROLI, BYLINE: It is by now a familiar problem. Eight years after the subprime mortgage crisis, many of the richest and most developed countries of the world remain mired in slow growth, says MIT economist Simon Johnson.
SIMON JOHNSON: The fundamental facts of Japan and much of the Euro area are that growth is disappointing. Growth is low. Investors do not feel there are attractive places to put their money with good return to reasonable risk.
ZARROLI: Recently there's been something else to be worried about. Next week the United Kingdom will vote on whether to leave the European Union, and recent polls suggest the vote will be a lot closer than it once seemed. That's introducing a big, new level of uncertainty into the global economy, so a lot of investors are doing what they always do. They're pouring their money into government bonds. David Blanchflower is a professor of economics at Dartmouth.
DAVID BLANCHFLOWER: People are looking for safety. They're looking for places to park their money.
ZARROLI: This surging demand for government bonds is driving down interest rates in the United States. And in some wealthy countries such as Sweden, Denmark, Switzerland and now Germany, bond rates have actually fallen below blue zero, Simon Johnson says.
JOHNSON: We have some countries - the most notable are in Europe - where the investors are willing to buy bonds that have a negative yield so you don't get compensated for putting your money into these bonds. You actually - it's like paying a little tax, if you like.
ZARROLI: Buying a bond that's guaranteed to lose you money may seem like a pretty crazy thing to do. It's actually not as irrational as it seems. Money market economist Tom Simons of Jefferies and Company says a lot of bonds are bought by big institutional investors, and they don't usually hold onto them very long. They sell them.
TOM SIMONS: I think that when an investor buys, say, a 10-year bond at a negative yield, what they're thinking is that, I'll hold this for a short period of time, let all of the period of uncertainty sort of dissipate. And then at that point, I'll probably get out of it.
ZARROLI: As long as rates are falling, investors who sell bonds can still make a profit. The risk is that something unexpected can happen. Rates could suddenly reverse course, and a lot of big investors could lose huge amounts of money, Tom Simon says.
SIMONS: One might assume that if the outlook brightened just in general that there would be a mass exodus from the negative yielding assets and that everybody would be selling at the same time. And if that happens, then losses could be substantial.
ZARROLI: Last week one of the most famous bond investors in the world, Bill Gross, tweeted a warning about the bond market. He said there are now $10 trillion worth of negative rate bonds on the market. This is a supernova that will explode one day, he said. He later appeared to walk back the remarks a bit.
In fact, risks are nothing new in the bond market. Unexpected changes in interest rates mean big losses for some investors and big gains for others. Tom Simons says the fact that negative rates are growing more common could add a psychological element to the market. It could make some investors more nervous. They could react in ways they never have before. But no one knows for sure because the world of negative rates is still such a new one. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.