Are Interest Rates Really Low?

38 Pages Posted: 27 Jan 2018 Last revised: 6 Feb 2018

See all articles by Daniel R. Feenberg

Daniel R. Feenberg

National Bureau of Economic Research (NBER)

Clinton Tepper

University of California, Los Angeles (UCLA) - Anderson School of Management

Ivo Welch

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 5, 2018

Abstract

Contrary to common perception, many fixed-income investors have not suffered unusually low real interest rates in and after the Great Recession of 2008. This is because taxable investors must first pay taxes on nominal interest returns, before inflation further reduces their earned real interest rates. To obtain the same real after-tax yield, investors need more than one-to-one compensation for inflation. As a result, long-term Treasury bonds have been no less attractive for taxable investors in 2016 (with a 1.0% post-tax real yield) than they were in 2006 (0.5%), 1976 (-1.7%), 1966 (0.9%), and 1956 (0.8%), although they have been less attractive than they were in 1996 (2.4%) and 1986 (2.9%). Short-term Treasury bond yields have been on the low side but have also not been particularly unusual.

Keywords: Taxes, Interest Rates, Yields, Municipal Bonds, Treasuries

JEL Classification: E43, E44

Suggested Citation

Feenberg, Daniel R. and Tepper, Clinton and Welch, Ivo, Are Interest Rates Really Low? (February 5, 2018). Available at SSRN: https://ssrn.com/abstract=3104897 or http://dx.doi.org/10.2139/ssrn.3104897

Daniel R. Feenberg

National Bureau of Economic Research (NBER) ( email )

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Clinton Tepper (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

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Ivo Welch

University of California, Los Angeles (UCLA) ( email )

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310-825-2508 (Phone)

HOME PAGE: http://www.ivo-welch.info

National Bureau of Economic Research (NBER)

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