Government bond interest rates near all-time low

A trader works on the floor of the New York Stock Exchange on May 8, 2012 in New York City.

Jeremy Hobson: Well now to another number: 1.7 percent. That's the yield -- or interest rate -- on 10-year government bonds and it's near an all-time low.

For more on what that means and why it matters, let's bring in Chris Low, chief economist with FTN Financial. He's with us live this morning from Scottsdale, Ariz. Good morning.

Chris Low: Good morning.

Hobson: Well, Chris, is this low yield a sign of investor confidence in the U.S. or do we just look good compared to the rest of the world right now?

Low: Yeah. I guess I'd call it "investor confidence by default." What we're seeing this week is money flooding out of Spain, out of Greece, looking for a safe haven as they try and figure out what's going to happen to the euro.

Hobson: And what is the benefit -- who benefits from these low rates?

Low: Well, yeah, it's safety. Obviously, the Treasury benefits because the cost of borrowing here in the U.S. is lower. And then another added benefit -- yesterday, 30-year fixed rate mortgages hit an all-time low average in U.S., which was a little less than 3.7 percent.

Hobson: And with the Treasury benefit there, any chance that they're going to use that for anything? Start borrowing in big ways -- more than they already are?

Low: You know, some economists -- myself included -- suggest that maybe the Treasury should do what the U.K. has done when rates are really low and issue 50 and 100-year bonds; lock in those rates for a long time and not have to worry about refinancing at higher levels.

Hobson: And Chris, of course we remember the credit-rating agency S&P downgrading last year. Is it time for them to bring us back up to AAA?

Low: No, probably not. You know, S&P said the reason they downgraded the U.S. was because there's no long-term plan to balance the budget. There still isn't. So I guess what we're seeing is that we're not necessarily the best -- but the least, worst.

Hobson: Chris Low, chief economist with FTN Financial, thanks so much.

Low: You're welcome, thank you.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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