So right now there's an article on CNN about the artificially high rates being returned by bonds right now since everybody is pushing money there. It says they're returning 13% for 2008???? That seems pretty high. Can someone quickly explain why I see really low bond interest rates (like 2.22%) but then they somehow return over 13%? Is that based on a secondary market? Confusing.
You are confusing two separate components of the bond: price and yield. As price climbs, yield decreases. So what the article is referencing is that the price of the bond increased 13% over the last year. People who bought last year could sell now for a gain. This does not take into account the hold until maturity calculation of yield that is sometimes used when evaluating bonds.
The above posters are correct. Investors started buying these bonds last fall as the economy started imploding - looking at T bonds as a safe investment. Buyers drove the price of these bonds through the roof, and allowed the Fed to keep the interest yield extremely low. Buying Treasury Bonds now would be the same as a Wall Street strategy of buying high and selling low - just the opposite of what you are trying to accomplish. So unless you are a broker with an investment firm about to crash, and looking for some place to dump your money before you lose everything, stay away from these for the immediate future!
I've read that the demand for bonds was so high that the yield went to 0%. I'm assuming that's nominal. This makes no sense to me.
