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I know that the US Fed sets only the federal funds rate, which impacts only the shorter term treasury bonds. The longer term bond yields (ie 20, 30 years) are impacted by demand for those bonds. The more people that want it, the lower the yield. Currently, the yields are extremely low (compared to historic values). Does this mean that many people are buying these bonds? I thought the QE/bond buying from the fed only related to shorter timeframes? Where is the demand, and thus the low yield, for the 30 year treasury bond coming from?

To provide some context, I am asking this in relation to the current US stock market performance. I believe we are in a bubble, but because interest rates are so low, there is essentially no alternative to US equities to avoid cash devaluation. Because of this, I expect the bubble to continue, until rates rise and provide a non-stock market alternative investment. I plan to continue to monitor the bond rates. But I am getting confused as to why the long term rates are so low? Who the heck is buying those long term bonds at the moment?

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  • " Does this mean that many people are buying these bonds? I" - I dare saying hardly ANOYNE buys them (as in people). Mostly companies, institutional traders and - IIRC the fed. " we are in a bubble, but because interest rates are so low" - no, because the interest rate are so low FOR MORE THAN 10 YEARS. Mother of all bubbles, if you ask me. "there is essentially no alternative to US equities" - THAT is wrong. Oil is up seriously in the last months, as are cryptos and real estate outside the cities is exploding, so there ARE alternatives.
    – TomTom
    Jan 17, 2021 at 22:20
  • @TomTom could you elaborate a bit? By 'more than 10 years' you mean that interest rates have been low for >10 years, not that interest rates are low for the >10 year treasury bonds, right? Also, what are your thoughts of the thesis? What is propping up this bubble if not TINA? What could cause it to pop?
    – Runeaway3
    Jan 17, 2021 at 22:24
  • Exactly. The thing started in the 2008 financial crisis and never recovered. It is not that they ARE low. Low interest rates lead to bubble like expansion. If that goes on - hm - 12 years, you have the worst expansion I have ever seen. There is hardly ANY value to be found in stocks, all bubbly. And not a small one.
    – TomTom
    Jan 17, 2021 at 22:27
  • If/when the bubble bursts, look out below.
    – Bob Baerker
    Jan 18, 2021 at 1:34

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In short, because the market prices them that way. There is still huge demand for (effectively) risk free long term bonds at these rates, for a number of reasons so large many books could be written about it. However, for the sake of a super of a super simple overview, here's two key points:

  • Long term risk free/low risk debt has historically always had a terrible inflation adjusted return, it's just that inflation was also often very high so people got used to these nice round headline numbers of interest rates without fully pricing in inflation. Compare these asset classes total return since 1802 (particularly bonds and bills) for example:

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  • Because of this, worrying too much about them isn't worth much time because they have always been terrible investments over medium+ (and even most short) timescales vs more productive assets, and you shouldn't be holding much of them or worrying too much about what effect they have on stock or other markets unless your timescales are very short or your risk appetite is very low.
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  • To clarify, I'm not looking at it from the perspective of an investment. I believe rising bond yields may provide a clue into the timing of a potential bubble burst. Only mentioning this in case there's something you'd like to add with that context in mind.
    – Runeaway3
    Jan 20, 2021 at 15:57
  • The general key point is you're hypothesising that people will quickly move back into bonds if rates rise and the equities market will crash because the absolute figure of interest is low vs the historical absolute figure. The counter to this is most entities who are in things with the risk profile of equities wouldn't add hugely to their long dated US bond positions until they are providing clear and large-scale above inflation long term returns, which is very rare historically because they're virtually always poor performing investments vs inflation.
    – Philip
    Jan 20, 2021 at 19:49

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