The following is my answer to a Quora question: “US Treasury bond rates are currently, as of June 2021, extremely low. Who buys these bonds, and why?”
Contrary to what most investors might think, institutions, major
funds, and sovereign funds do not buy sovereign bonds for their yield in excess
of inflation. Rated sovereign bonds such
as US Treasury bonds, represent safety and an ironclad guarantee. They are bought to mitigate the risk of
equities and other investments. Rated
sovereign bonds are meant to be a safety net.
In the event that the value of the rest of the portfolio is caught up by
a market downturn, the value of rated sovereign bonds remain stable. They also give a steady return on
investment. While that yield is low, it
is still a return, which mitigates loss elsewhere in an investment portfolio.
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