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I listened to a show about interest rates, and what drives them. It is something I never fully understood.


For one thing, interest rates are global. So since world wide interest rates are low, that will keep US rates low at least for now.

Another driver is short term rates. The Fed sets short term rates, and low short term rates correlate with low long term rates.

A third factor is inflation. If inflation increases, the interest rates on bonds will increase to make them worthwhile.

Finally there is credit risk. Companies with more credit risk, have to pay a higher rate. This is called the credit spread. A credit spread is the difference in yield between two bonds of similar maturity but different credit quality.
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