Right now, one of the core questions perplexing markets is how U.S. treasury rates on long term debt can remain so low, even though the U.S. government continues to add more and more debt to the supply.
The simple answer is that right now, the demand for that debt continues to outpace supply, reducing interest rates.
It becomes more clear when Bloomberg (via Zero Hedge) tries to explain the reasons behind this abnormally high level of demand. They chalk it up to:
- Reduced growth expectations for the U.S. economy
- Expectations for U.S. inflation decreasing
- A downward revision in expectations for U.S. interest rates
- Safe-haven demand
The chart shows the supply of debt increasing (B little s) and the demand curve (B little d) moving outward reducing rates. Right now, Bloomberg suggests we are at C on this graph, where yields are very low.
Eventually, at point E, yields would be much higher, if the government keeps increasing debt.
From Bloomberg (via Zero Hedge):
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