Treasury Bond interest is low (debt, borrowing, buy, companies)

[robertpasa]

My folks bought a Treasury Bond with a 30-year maturity date in the 90s. It's still benefiting us today and the interest rate was high.

Why has the rate been so low in the past few years? The govt may want us to spend the money and not save it.

[mathjak107]

correct . the fact that almost every major country in the world has rates below 1% because of a global slow down doesn't count

[robertpasa]

How many people buy those things these days? The interest is so small.

Doesn't it also benefit the govt when we buy those things? It's more money in their till.

[Jobster]

The idea is that low interest rates will boost the economy through companies borrowing more money to fund projects in order to create growth. Additionally, consumers will be more inclined to borrow money as well.

Furthermore, companies create value by taking on debt. Lower interest rates means companies will be more inclined to take on debt.

[Jobster]

Originally Posted by robertpasa

How many people buy those things these days? The interest is so small.

Doesn't it also benefit the govt when we buy those things? It's more money in their till.

It makes sense to invest a portion of your portfolio in something risk free because it lowers your overall portfolio volatility (risk).

[robertpasa]

Why didn't they have that same idea in 1993?

[Reynard32]

Low interest rates also make it more attractive to spend on projects in the real economy (where jobs and outputs come form) as opposed to simply squirreling funds away somewhere in the financial economy (the unreal world of rates and indexes).

If I have a project that I think will provide a 5% return on investment, but I can get 7% interest down at the bank, I'm not so likely to do the project. On the other hand, if bank rates are 3%, my 5% suddenly looks so good that I might want to leverage my own equity with some handy 3% bank money. More jobs, more output as the result.

[nei]

Originally Posted by robertpasa

Why didn't they have that same idea in 1993?

Inflation fears; lower interest rates risk high inflation. But inflation is low and investors are still buying securities at low interest rates.

[Reynard32]

Inflationary expectations are a part of interest rates. If people believe that inflationary risk is high, interest rates will rise. For good reason, people rarely believe that inflationary risk is high when inflation itself is low.

[NJBoy3]

Zero interest rates with high inflation will force savers to spend their money. Fortunately we are not seeing high inflation. But we are not doubt seeing moderate price inflation.

It is my opinion the government should not be setting interest rates. It leads to a false economy. People get hurt in false economies.