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Originally Posted by RawAlex
Until there is a major change in the world wide economy, the interest rates are not going to move. Places like japan are still seeing interest rates at or below 1% typically. I truly doubt you will see anything above 5% in US or Canada in the next 5 years. The reason is pretty simple: Lower interest rates lower the value of bonds, which is how the government borrows money. With Bush digging an economic hole as fast as he can, there is no desire to make that money more expensive. As a secondary effect, it keeps the value of the US dollar down a bit, which raises the prices of imports but makes it possible to produce goods at a competitive rate inside the US, which means more employment, which means more demand for housing, which works best is a low interest rate situation.
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The US doesn't control the price of treasuries though. Treasuries are sold in auction. The buyers of treasuries determine the price. As far as the supply side, all other things being equal when the government borrows money by selling bonds that increases the supply of bonds, decreases their price and therefore increases the associated interest rates.
Also, I don't know what you meant by the statement that "Lower interest rates lower the value of bonds". The price of a bond increases when interest rates drop.
The fed keeps increasing the price of credit by raising rates. The higher employment you mention is likely to lead to more rate hikes. Only some other negative economic signs wil keep them from raising rates. There are some so we will see.
*IF* the fed keeps hiking rates, bond yields will likely follow.
But a bubble is a bubble is a bubble. Low rates just further inflate speculation and make the pain all the greater in the end.