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What are historical interest rates?

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Quick Answer

Historical interest rates are the past rates that were transacted for different interest-bearing investments. These investments include money market instruments, bonds, certificates of deposit, savings accounts, swaps and mortgages.

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Full Answer

U.S. Treasury Bills are a type of money market instrument. They have usually traded at a discount to their par value, which comes in denominations of $1,000. These rates are determined in a competitive market through a process known as price discovery.

The U.S. Federal Reserve can influence interest rates by buying large quantities of T-Bills on the open market, driving the price up and the interest rate down, or by selling large quantities of T-Bills on the open market, driving the price down and interest rate up. Interest rates fluctuate dramatically over long time periods. In the 1980s annualized T-Bill yields rose above 15 percent.

The early part of the 2000s were characterized by extremely low interest rates. The period between 2008 and 2014 marked the appearance of negative interest rates in T-Bills and European Union interest-bearing investments. Negative interest rates are a result of huge demand for safe, liquid investments. Investors are willing to pay the U.S. government for the privilege of investing in government-backed investments. Part of this demand has come as a result of the U.S. Federal Reserve's quantitative easing program that, as of 2014, has included huge purchases of T-Bills, T-Bonds and U.S.

Treasury Notes. Moves by the U.S. Federal Reserve to decrease interest rates are generally received favorably by stock market participants. Moves to increase interest rates have caused stock markets to sell off.

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