Government rates are set by the market at auction. The government does not set the rate of their own bonds, they just offer to sell a certain amount, and the au

Government rates are set by the market at auction. The government does not set the rate of their own bonds, they just offer to sell a certain amount, and the auction determines the rate. In the US, the Federal Reserve sets the Federal Funds rate, which is (supposed to be) determined independent of the federal government. The reason rates are low is because there is a lot of demand, and participants are bidding down the price as they compete to acquire the bonds.