This is crazy: Nestle is getting paid to borrow money

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By Matt O’Brien,

from The Washington Post,

Once upon a time, you actually had to pay lenders to borrow money. It was an archaic ritual called “interest”, … but it’s over now.

In fact, it’s the opposite of how things work today, at least in Europe’s brave, new, deflationary world. France, Finland, Belgium, Denmark, the Netherlands, and Germany are all getting paid by investors—that is, bond yields are negative—to borrow for up to four, and sometimes six, years. Switzerland is even getting paid to borrow for ten years. That’s never happened anywhere before. But it’s not just governments that people are paying for the privilege of lending to. It’s companies, too. Or at least one of them: Nestlé. Its €500 million debt that comes due in October 2016 became the first corporate bond of a year or longer to have a negative yield, after it got as low as -0.0081 percent on Tuesday. (Its borrowing costs later rose to a, relatively-speaking, punitive -0.002 percent).

That brings us to the obvious question: Why would you ever pay Nestlé, or anyone else for that matter, to borrow money from you? Well, because there’s not enough inflation and not enough bonds. This makes more sense if you look at what currency Nestlé is borrowing in: the euro. Prices are falling 0.6 percent in the eurozone right now, so a euro will be worth more tomorrow than today. And that means it can make sense to lend money for nothing or even negative amounts. That’s because the euros you’ll get paid back with will be worth more than the euros you’re paying with right now. So you can lose money but still make money, as long as its value is going up.

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