Wall Street Journal Article: Interest and Bonds

Posted: August 26th, 2021

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Wall Street Journal Article: Interest and Bonds

1. Publication Name: Wall Street Journal, Date: February 8, 2020, English Edition.

Title of Journal: U.S. Government –Bond Yields Fall as Fed Leaves Benchmark Interest Rate Unchanged

Author: Sam Goldfarb, updated Jan. 29, 2020

1. Description and Summary of the Article

The article discusses the decline in the yields for U.S Government-Bonds following the increasing speculation over the outbreak of coronavirus in China. The outbreak is anticipated to hurt the global economy over time; thus, investors are becoming apprehensive of investing due to uncertainty in interest rates. The article demonstrates this impact of speculation by analyzing the yield on 10-year U.S Treasury note, as summarized in the chart below:

Figure 1: Yield on 10-Year U.S Treasury note

Source: Wall Street Journal: https://www.wsj.com/articles/u-s-government-bond-yields-fall-ahead-of-fed-decision-11580313870

Figure 1 displays the performance of the 10-year Treasury note over the past week. According to the article, the yield has drastically dropped to the lowest in the past three months after the pronounced spread of coronavirus that led to the cancelation of flights to China. The situation is compounded by little effort that the Federal Reserve did to alter the expectations of investors about reducing interest rates some times in the year. Hence, this has demoralized the investors, discouraging further increase of investment funds in the bonds.

1. Relation to Course Content

The article directly relates to the course, particularly the lesson on interest and bonds. The course content defines bond as public debts of a corporation or government entity. In this case, the focus is on bond as a debt for a government entity and interest-only loan. Here, therefore, it implies that the bond would remain attractive to lenders given that the interest rates are high or anticipated to grow over time. Interest is a promised return to a lender over the principal amount that is given to the borrower, in this case, the government.

1. Final Thoughts

Investors are always keen on the performance of their investment. In terms of security investments, interest rates play a crucial role in determining the amount that investors will get from the investment. However, external factors within the market may affect the interest rate, thus influencing the level of investment and expected yield as discussed in the article.