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Why aren't first world governments issuing bonds with good interest rates anymore?

by Kluny 11y ago

mikeash 11y ago
Demand is huge compared to supply, so prices are high. (A low interest rate for a bond is a high price, and a high interest rate is a low price.) Why sell bonds for more than you need to?
fauigerzigerk 11y ago
Because they don't have to. People are willing to lend them money for almost nothing because there is not enough demand for credit compared to the supply of savings out there.
roymurdock 11y ago
Federal Reserve sets short term interest rates throughout most of the market through the Federal Funds Rate (FFR). It dropped the FFR to ~0% after the financial crisis, but instituted a brand new policy: 0.25% interest on reserves held at the bank in order to get banks to be less risky and loan against more safe assets that they keep with the treasury. Conventional economic thinking is that low interest rates spur economic activity, as individuals and institutions that would have once parked the money in safe government bonds and earned a return on the interest would instead be forced to lend out into the real economy to find a decent rate of return. The problem is that the money supply is too large due to QE and there is not enough demand for viable, long-term projects such as infrastructure, R&D, education. Plus the government continues to run into the debt ceiling. If it were to raise interest rates on its bonds, it would be paying out more on its already enormous debt.
parasubvert 11y ago
Because there is a glut of idle money right now as the first world continues to unwind its debt positions from the financial crisis. Investors are parking their cash in safe assets in droves (government bonds and real estate), so there's basically no safe assets left that will earn a return (perhaps other than real estate speculation) - investors then go on to hunt for riskier investments in emerging markets that will at least gain something, at risk of losing the principal if the government defaults.

Why aren't first world governments issuing bonds with good interest rates anymore?

by Kluny 11y ago

Why aren't first world governments issuing bonds with good interest rates anymore?

Demand is huge compared to supply, so prices are high. (A low interest rate for a bond is a high price, and a high interest rate is a low price.) Why sell bonds for more than you need to?

fauigerzigerk 11y ago

Because they don't have to. People are willing to lend them money for almost nothing because there is not enough demand for credit compared to the supply of savings out there.

roymurdock 11y ago

Federal Reserve sets short term interest rates throughout most of the market through the Federal Funds Rate (FFR). It dropped the FFR to ~0% after the financial crisis, but instituted a brand new policy: 0.25% interest on reserves held at the bank in order to get banks to be less risky and loan against more safe assets that they keep with the treasury. Conventional economic thinking is that low interest rates spur economic activity, as individuals and institutions that would have once parked the money in safe government bonds and earned a return on the interest would instead be forced to lend out into the real economy to find a decent rate of return. The problem is that the money supply is too large due to QE and there is not enough demand for viable, long-term projects such as infrastructure, R&D, education. Plus the government continues to run into the debt ceiling. If it were to raise interest rates on its bonds, it would be paying out more on its already enormous debt.

parasubvert 11y ago

Because there is a glut of idle money right now as the first world continues to unwind its debt positions from the financial crisis. Investors are parking their cash in safe assets in droves (government bonds and real estate), so there's basically no safe assets left that will earn a return (perhaps other than real estate speculation) - investors then go on to hunt for riskier investments in emerging markets that will at least gain something, at risk of losing the principal if the government defaults.