The greater point of interest, however, is the interest rate difference between the 15-year and 30-year bonds (which indicates the ‘yield curve’). The 30-year bond found surprisingly strong demand (during the auction pricing process), ensuring that its yield remained a low 7.91 per cent, while that for the 15-year bond was 7.44 per cent. As most analysts see it, a difference of just 47 basis points (just under half a percentage point, that is) is something of a surprise. Nobody had expected the yield curve to be as flat as that.

What does it mean?

Two things. First, as mentioned earlier, that the 30-year bond has greater demand than earlier suspected. And two, that the market does not expect inflation to spin out of control in the long term.

The government, needless to say, is pleased at the turn of events. The bond stretches its borrowing programme far into the future (and what better time to borrow than when the rates are so low?), and thus gives it more breathing space. It also means that the market rates its inflation-management skills highly (or so in the long term, at least).

\That leaves just one question. If the interest rate is so unremunerative, why would anyone in his right mind buy such a long-term bond?

Simply because some financial players need long-dated securities. The insurance industry is the best example. An insurer typically has long-term liabilities (what it owes customers), and it must balance these, to the extent possible, with long-term assets (investments). Government securities are relatively risk-free, and a great place to park funds for the long term. Pension fund companies are attracted to long-term bonds for similiar reasons.

In fact, the above mentioned players had been clamouring for 30-year bonds for quite some time now. Every economy needs long-term investments that are as risk-free as can be. Of course, nothing is entirely risk-free. Every country’s sovereign debt carries some risk. That’s why savvy financial players keep their eyes glued to other economic indicators as well.