On Wednesday, the government auctioned off $12 billion in U.S. Treasury 30 year bonds for the astoundingly low interest rate of 2.172%. These are taxable bonds. This means that the investors in these bonds expect essentially no economic growth in the U.S. in the next thirty years.
Consider what 30 years of “steady state” economic growth would mean.
It would mean that the stock market indexes should stall where they are or rise until the average dividend is lower than bonds, although individual issues should do well. Index funds gonna suck.
It means that we should all save much much more because average investment returns will be small.
It means that they don’t expect interest rates to rise ever. Cash and C.D’s will have zero return for the next thirty years.
It means the American Middle Class will stagnate or fade. Upward mobility will require either luck, educational prowess, or unique skills in wealth creation.
This suggests, that, should this interest rate be an accurate indicator, there will be substantial social unrest, perhaps even revolutionary movements, as the American economy withers and American frustration grows. All the central bank interventions and sweeping economic policies haven’t worked.
It seems to me that this is the biggest news of all. After all, there can’t be economic justice for any economic or ethnic group if the entire economy is fading.
Or investors are wrong, and this bond market is simply overpriced, and in a bubble.
We will only know by living through this. Eat your veggies.