Taking a look back at the ups and downs of interest rates in the United States since the turn of the 20th century we can see that today’s interest rates are at some of the lowest levels ever seen in this nation. Even though many people have gotten used to the yields from 10-year Treasury notes at around 2%, it’s important to realize just how low the current rates really are. This points out that the real rates are essentially what the yields on U.S. Treasury notes are, minus the effects of any inflationary factors.
This means investors need to keep a sharp eye on the real rates because any long-term bet on bonds could be a losing proposition over the long term due to the effects of inflation cutting into the fixed rate of return on them. Essentially, this means the real interest rates are negative relative to the effects of inflation.
In years past U.S. Treasury notes were good short-term bets in the financial markets because the long-term components often returned 25% or better. Today, the lower numbers mean that low interest rates should help encourage more companies and consumers to borrow money. The only downside is that people who are scared about losing their job, unemployed or upside down on their mortgages cannot usually take advantage of the super low real interest rates because they can’t qualify for the loans. For some credit-worthy borrowers however, the low current interest rates may be a boon. For the investors however, the numbers show just what a tough environment they are facing when trying to put their capital to work these days.
