Why Are U.S. Bond Yields So Low?

Secondly, people tend to buy the bonds of their own countries, so the U.S. has a larger base of bond investors and has the advantage of foreign central banks investing in our bonds for nonmarket strategic considerations.

A third reason is the "safe haven" factor: "With a large fraction of European sovereign bonds in trouble, U.S. debt has benefited from an increase in demand," the authors write.

The fourth reason the authors cite, "credibility," seems somewhat less credible: "The government pledges to keep the debt at a sustainable level and the Federal Reserve assures that it will not monetize away the debt." While many might challenge those assertions, the authors explicitly compare the U.S. to the European Union, whose Maastricht treaty rules on debt and deficits lacked teeth. (And using an extreme case to illustrate the principle, they point out why investors would view U.S. commitments as more credible than Zimbabwean government promises.)

The authors conclude that "the  market seems to think the U.S. government can solve its debt problems," and they implore the U.S. not to betray that confidence.

But Amaral and Jacobson's provocative analysis suggests a starker conclusion. Ordinary American households seeking to keep their money in investments with stable returns and moderate risk need to consider the fact that U.S. bonds–like the Oldsmobile commercial–are no longer their  father's safe investment.