Question: Why are Government Bond Interest rates so low?


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Answer #1:

If this market picks up have your finger on the sell button to your gold.
The price of gold could lose have it's value in a BLINK OF AN EYE.
If this market picks up.

Spain could default.
If they do you will lose that bond - in other words your $25,000 GONE.

Your only other choice is the stock market.
In the passed 10 years the market has made practically nothing.
Some people easily lost 40% of their entire retirement during the crash.
And many investors see a double dip - it could easily happen again with all this government spending going on.

Hopefully this will give you a better understanding why people could buy US government bonds for 10 years at 4% interest.
They could possibly be the smartest people out there.
They sleep well at night and know their money is safe.
Another crash could be right around the corner --- or the market could recover and gold will become worthless.
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Answer #2:

the return is that low because the risk is that low. investing in gold or stocks will give you more risk. thus more reward. 5% is actually quite high for a government bond. government bonds are usually near the 3-3.5% The US and spain government bonds pay more because their financial position has worsened a lot since 2007.

on a sidenote that 5% is actually substantial since the interbank loan rates are near 0.1-0.3% at this time. there is only a 1% difference between market rate and interbank rates in a normal economic setting.

this is a clear indicator that the central banks still think the economy needs stimulating.

Answer #3:

1. Treasury bond rates are low because interest rates are at record lows.
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"Secondly, we can get better returns if we invest money in Gold or some shares"
2. There is no guarantee that this will occur.

3. "inflation "
Correct. If we have inflation, and I argue we eventually will due to US Debt spending, your 5% return will not keep up if inflation moved above that rate. Right now the risks are still to the down side or deflation.

4. "my question is why are Government Bonds so popular? Why do people buy it inspite of lower returns?"
Because of the government principle guarantee. Keep in mind that a chuck of our debt is owned by foreign governments. Foreign governments are not going to risk their reserve capital in any stock market.
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5. Spain.
I would be careful about Spain, and the so called, "PIIGS" (Portugal, Ireland, Italy, Greece, Spain) counties and EU debt in general. Risks there are way higher than in U.S. Treasuries.

Answer #4:

That is because the risk associated with the Bonds are low, i.e. there is no chance that the government won't be able to pay their debt on time. The general rule is the higher the risk the more compensation people will want in order to take the risk

Answer #5:

the returns on government bonds are low because they are a guaranteed investment. government bonds are guaranteed by the governments ability of taxation. the returns are low because said government will have to pay the interest. they are popular because it is valuable for investors to use guaranteed investments as a portion of their portfolio as a hedge against their riskier investments which may go down in value.

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