30 Year Bond Rate

By: EconomyWatch Content   Date: 30 October 2009

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The 30 year bond rate or the US long bond rate is bottomed out at present (October 2009). Industry analysts believe that the long bond prices have had their bull run and expect the 30 year bond rate to recover. When bond prices go up, the yield or interest rate goes down and vice versa. After 1981-82, the yield for 30 year bond went downwards after the 25 years of bull run on bond prices. There is a belief among the investing community that the 30 year bond rate, after reaching a bottom during 2008 will start increasing thereon. Indeed, the yield for 30 year bond increased to 4.76% in October 2009, as compared to 2.5% in 2008.

 

30 Year Bond Rate: Prospects 

There are many reasons for 30 year bond rate to rise in the future, from the 2009 levels. Here are some of them:

 

Over Extension of the Bull Run in Bond Prices: First, the bond prices had been rising over the past 25 years and considered to be overextended. When the bond price decreases, the 30 year bond rate or interest yield increases. The largest buyers of US Treasury bonds, like China, are now concentrating on buying commodities due to the low bond interest rates. Although the US government tried to enhance bond prices by monetizing its debts, the 30 year bond rate is not declining. This is a sign of reversal for bond yields.

 

More Money into the Banking System: Many governments across the globe have been printing more money and pumping them into the banking system. This means, if the global economy recovers in one or two years from 2009, inflation will rise substantially. This essentially means an increase in 30 year bond rate.

 

Bailout Money for Banks: The US government has been offering bailout packages for major banks and some of them are recovering to make profits. The risks regarding banks globally have declined significantly. This equals to more liquidity in the system and lesser risk.

 

Considering the above mentioned scenarios, it is very much possible that the 30 year bond rate or yield recovers from the current level (October 2009). Moreover, the yield will rise constantly for at least a few years. 

 


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