The low level of long-term interest rates is mainly the result of continuing expectations of moderate inflation, even over a very considerable time span. These expectations are based on the credibility of monetary policies. Investors accept modest returns in part because they have a perception of diminished risk, related to the limited volatility of securities prices and to conditions in the real economy.
The expansionary cycle and wage moderation have sustained the growth in corporate profits, thereby improving the state of firms’ finances. The insolvency rate is well below the long-run average. The spread between corporate and public-sector bonds is now unprecedentedly narrow.