Real interest rates measure the actual return an investor expects to receive after subtracting the effects of inflation and other risks from a stated (nominal) rate of return. When numbers are low, say less than 10%, we can approximate the relationship between nominal rates (k), real interest rates (k*) and inflation for a default risk-free asset (i.e., T-Bills) by the Fisher approximation KRF = k* + IP, where IP is compensation for expected inflation (an inflation premium). Suppose k= 0.25% and IP = 1.25%. Why would an investor agree to "pay" or diminish his real return by acquiring this T-Bill (i.e., lending money to the Treasury of the US and paying interest to the Treasury, not receiving interest)? Investors know that negative real rates are a rarity and expect the real rate to turn positive in the short-term O Investors become risk averse in uncertain times and may seek the safe liquidity of the T-Bills, even at a cost. O When real rates become negative, investors may become less risk averse and desire to gamble on the T-Bill price going up O Investors keep misreading the market and negative rates result consistently from market efficiency hypotheses