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While short term interest rates are strongly affected by the operation of the Federal Reserve, which can choose to buy or sell to achieve policy goals, long ter
by projektfu 7y ago
While short term interest rates are strongly affected by the operation of the Federal Reserve, which can choose to buy or sell to achieve policy goals, long term interest rates are set by the market. If the government offered bonds with a coupon at 3 times the going rate, it would sell at auction at a price that would cause it to yield the going rate. Essentially, the market is not excited about the prospects for equities and has been bidding up the price (reducing yield) of bonds.
N.B., inflation (CPI-U) averaged 1.5% per year over the last 5 years, if my calculation is correct.
- mpalczewski 7y agoNobody in their right mind would buy negative yielding debt. Those long term negative rates aren't set by the market. Some pension funds are forced to buy those bonds, as well as quantitative easing.
- projektfu 7y agoI was discussing low interest rates, not negative. But usually in the US when we talk about a negative yield we're talking about a negative real yield not a negative nominal yield. There is a "zero lower bound". Perhaps an algorithm would buy a bond at a negative yield but probably not a person. Or, a central bank may purchase back bonds at negative yields to get the cash out there. Europe is a different story, I don't know entirely how they run their monetary system.