Why Interest Rates Are Low And Will Stay That Way
Well, at least for a while.
The simple answer is this, the lower the interest rate, the lower the payment obligations. Based on that concept…..
America has successfully refinanced its national debt from higher interest rates to lower interest rates. 88.5% of all national debt is now 10 years or shorter. This is good for us as a nation; less interest that needs to be paid means less federal budget restraints.
The yield on the 10 -year Treasury note closed at 1.36% on Friday (7/08/21), the lowest closing yield since 1790. What is bad for our nation is the continuing deficit, which seems to be out of control. Whether it is democrats or republicans in charge, it just grows. Now, heading towards us like a freight train is the Baby Boomer Generation; we all need our social security and Medicare.
How will that obligation be funded?
The government must keep the interest low to keep the deficit low; interest payments on the national debt last year were $348 billion (https://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm), which was down from previous years. It was NOT that the deficit reduced; it was the fact that the interest rate was far less. In fact, 2021 was the lowest interest amount paid since 2006.
What does that mean for us as annuity salespeople? It is fairly simple; as long as an administration insists on keeping a stranglehold on the economy, interest rates will be low. Once the Federal Reserve begins increasing interest rates, the government will be forced to offer more debt auctions.
Then we will see two things happen:
- Annuity rates will strengthen and
- The country’s national debt interest payment will increase.
Good or bad?
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