Question

Why are foreign central banks buying U.S. Treasury bonds even if the yield near historical low?

Why are foreign central banks buying U.S. Treasury bonds even if the yield near historical low?

Homework Answers

Answer #1

Foreign central banks are buying the US treasury bonds because the interest rate are going to fall. Just recently the Fed announced that they will not increase the interest rate anymore in the coming future. That gives it only one way it could stay where they are or they will fall. If they stayed at the place no loss. if it fell the banks will gain.

For example, if the interest rate right now is 3% then a $100 bond will cost $97. If the rate fell i.e. to 2% then the same bond will cost $98. All the people who are holding it would benefit because the price of the bond they are holding increased. and it will give a higher return.

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