Buying negative-yield bonds -- or paying for the privilege of lending money -- might look like a sucker's game, but some analysts see the opportunity for profits.
"Is it strange for you to buy negative-yield bonds? Probably not," said Nizam Idris, head of strategy for fixed income at Macquarie.
It's about playing the currency, he said.
The FX effect
"If you bought Swiss bonds at the end of last year, you'd need to pay a negative rate, but the currency appreciated 30 percent," Idris said. "If you expect Danish central bank to do same thing [and unpeg its currency from the euro], then it would make sense to put money into Danish bonds." Denmark also has negative interest rates.
Markets were caught off guard earlier this month when the Swiss National Bank (SNB) canceled its over three-year-old policy pegging the exchange rate of the euro buying 1.20 Swiss francs. In response, the franc surged, with the common currency fetching as little as 0.86 franc in the immediate aftermath. In early Asia trading Wednesday, the euro was buying 1.03 francs.
The SNB also cut interest rates deeper into negative territory, by 50 basis points to negative 0.75 percent, in an effort to help cushion the blow. The move spurred speculation that Denmark's central bank may also depeg its currency; it's already cut its interest rates deeper into negative territory to counter pressure from a falling euro in the wake of the European Central Bank (ECB) launching a quantitative easing program.