Today's rate of return on a 10-year Treasury bond is a good indicator of the economic environment in
he U.S., and for the first week of December those yields were down to just 1.61 percent, the lowest they have been in the last 130 years. That rate of return indicates that most bond investors must not be too worried about inflation because they seem quite satisfied with the way things are right now. And even if the bond investors were worried, it's a good bet that no amount of government intervention could really level the playing field any more than it is now.The climate of today's record low interest rates makes 2013 the opposite of the way things were back in 1981 when interest rates last soared to record highs. The record low rates also make it a great time to borrow money. Even the price of gold can stay at its current high levels with low interest rates. Although when the rates eventually do climb back up, the yields on money markets will also rise and begin paying more than the rate of inflation at the time, and the incentives to own gold will be greatly reduced.
Finding investments with yields higher than 3.5% will be a challenge and although that number sounds reasonable, locating the best investments will not be as easy as it used to be and those investors who need more income will have to take more risks accordingly. Today is the first time since 1960 that the dividend yields on stocks are higher than on risk free treasury bonds. The Federal Reserve Bank has been targeting ultra-low interest rates by buying bonds and by adjusting the rate it charges other big banks for direct loans. If and when the Federal Reserve finally gets worried about rising inflation, they'll obviously reverse course and stop flooding the banking system with new cash.
Most economists think that interest rates here in the U.S. will stay low for a while longer and reducing the incentive for banks to lend money has helped them earn more profits and clean out the dead wood from their balance sheets at the same time. The low rates could last a while, however, they will not stay low forever, and aspiring borrowers should not wait too long to get a new loan or refinance, or will they risk paying higher rates on every new loan in the future.