Gist: Investing government bonds is the same as lending money to government. Instead of getting the interest paid by government, people need to pay a little extra at front. That means starting out at a loss. This is rational, because this particular bond offers a guaranteed protection against inflation. These investors are betting the prices will rise, eventually. Although inflation marks the price up, the producers can make profit on that in order to keep the company surviving. Because of that, the Federal Reserve is expected to pour hundreds of billions of dollars into the economy and hope the deflation will not happen.
The investment on bond is similar the concept of time value of money we discussed. However this time, people hope the price will rise.
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