What Does a Low 10 Year Treasury Mean?

Currently the 10 Year Treasury Bond % is showing on Yahoo Finance at 2.4990%. This is historically low and it has significance. Many instruments are driven and correlated to this yield. Historically, when I pull up the Yahoo chart and go back to 1965, nowhere between then and now were the yields that low. So what is a Treasury Bond and what does it mean? They are as low as the Eisenhower period.

Treasury Bonds are the government’s long-term debt, with maturities greater than 10 years. Treasury notes and bonds are considered to be the safest intermediate and long-term investments available because they are backed by the government. Don’t make any jokes!

So what drives rates lower and what does it mean?

Generally the rates are driven by the Federal Reserve (FED) and inflation. The Fed adjusts the primary FED Funds rate which drives short term rates more than long term. Long-term rates are usually driven by inflation and expectations.

So with 10 year treasury rates at a historical low, inflation would come into question first. Are we in deflation? Are we in a double dip recession? Most “experts” will tell you that this is not the case yet. Currently the low rates are more the product of slow economic growth along with expected slow economic growth in the near future.

Many people constantly ask themselves,  what does it mean that the 10-year Treasury rate is so low? This rate affects mortgage rates, financial product pricing, costs and so forth.

From what I have gathered, the answer is slow economic growth with low expectations for future growth. If expectations become more positive, the rates should rise. There are also double-dip recession theories, as well as the potential for deflation. What do you think? What about the risk that the federal budget deficit outpaces GDP growth and the government is no longer considered capable of paying the interest? Will interest rates spike? Will the dollar collapse completely?