Recently we have seen record low yields on U.S. government treasuries. Currently the 2-Year is trading at a yield of 0.25%. To provide some insight, at the height of the financial crisis in September 2008, when Lehman Brothers filed for bankruptcy, the yield was 2.08%. Even when the stock market reached bottom in March 2009, yields were at 0.93%.
There are a number of reasons for the current low yields in Treasury Bills.
Flight to Safety
The main reason that we are currently seeing record low yields is based on the fact that there has been a massive "flight to safety" by investors across the globe. Since stock markets started to rise in 2009, many investors still question whether we have seen and are still seeing a rebounding economy. With relatively little improvement in the unemployment rate, vast numbers of previously employed people now not even being counted as unemployed, and little willingness from companies to invest, there is a belief that there are too many dangers to the global economy for companies and individuals to invest in riskier assets.
Quantitative Easing
The Quantitative Easing programs undertaken by a number of central banks across the globe have had a range of impacts across the various economies. A number of supposed reasons for the programs have ranged from the honorable to the questionable. It has been claimed that the programs have kept interest rates low as the yield on government debt remains at historical lows and low interest rates may encourage companies to invest for the future. The fact that low yields on government debt enables those very governments to continue funding large current account deficits is supposedly meant to be just a coincidence. We will leave it to the reader to decide.
Government Wishes to Push Investors in to Riskier Assets
Lastly, low interest rates on government debt may hopefully push investors to invest in higher yielding securities such as stocks, which would again benefit companies who are looking to expand and take on more staff.
These facets of the economy are currently being studied by students in accounting and finance in various universities across the world.
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