Is there a profound insight I am missing that makes this state more unusual than it seems to me right now?
It might also be an issue that the US is not democratic enough, although there are some EU members (as well as the EU itself) that aren't as democratic as they should be.
The interest rate is chosen by the central bank, not by "the market" [1]. A different issue is who try to influence that decision [2].
The FFR (Federal Funds Rate) is the target interest rate for interbank reserve money. (The effective FFR is the average of the actual rates of those transactions between banks.)
And there's the interest rate for Treasury bonds (T-bills) determined via bond auctions.
Now, usually the Fed uses those bonds as collateral to conduct its open market operations that influence the effective FFR to keep it close to the target FFR, but the Fed does not bid on Treasury bond auctions.
Of course if the central bank intervenes and floods the market with cash (and takes assets as collateral, such as bonds) then banks are likely to turn to the Treasury and buy bonds with cash. And the real constraint is of course inflation. The ECB basically does this to keep interest rates low for Eurozone member countries.
Anyway, the central bank can do whatever it wants, but if there were too much inflation no one would want to operate a bank there, so eventually there would be no primary market for gov bonds. (That said the usual Bloomberg/FT/Reuters cries are laughable about how bad poor banks have it with near zero rates.)
these particular bond yields are not a reflection of "how good a country is with money", this is only a discussion in developing nations and their yields are already 8-20%
so this whole discussion is moot.
(Does the central bank usually set the interest rate? Why do lenders accept that decision?)
Who is buying that debt is really the Central Bank of Japan, so, it's really a political decision.
Yes, the central bank have a target interest rate and operate to keep it inside their chosen parameters.
Lenders accept that decision because they have not other option.
From http://bilbo.economicoutlook.net/blog/?p=40937 :
"That is what the Japanese experience since the early 1990s tells us. And all the stories about special cases; cultural peculiarities, closed markets, etc that the mainstream economists wheel out when another one of their predictions about how Japan is about to sink into the sea as a result of its public debt levels, or that interest rates are about to go through the roof because of the on-going and substantial fiscal deficits; or that inflation is about to accelerate because of the massive monetary injections; and more, are just smokescreens to divert our attention from the poverty of their analytical framework. The Japanese 10-year bond trade is called the ‘widow maker’ because hedge funds who try to short it lose big [..]"
Did the United States "get better with money" somehow in the last years before becoming "bad with money" again?
Edit: to be clear, I do know that there are many factors (including as well inflation expectations, for example). It´s not just a question of default risk due to being bad with money.
I don't have the data, but if Germany's yield followed a similar trend down then up, but remained below the US throughout, then the hypothesis holds.
Japan shows that the narrative of "good country" vs. "bad country" and interest rates beyond the control of the Central Bank have little to do with reality.
For example, if the share outlook for the next years looks unusually good/bad volatile/stable (compared to how it looked a couple of years earlier), then that makes shares more/less attractive to investors, and bond issuers have to adjust the rates they offer.
Yes, the economy started to boom but then the government went and issued massive corporate tax cuts while simultaneously increasing spending by quite a bit, which means increase in deficit.
EXTREMELY
The European Central Bank (ECB) has been buying sovereign and corporate debt, the entire yield curve, with new money with the purpose of making yields negative. This lowers interest rates in the eurozone.
This is its own comedy troupe that has nothing to do with the risk of the countries, especially the anything outside of the Eurozone and ESPECIALLY US monetary policy and the market's expectations of US debt.
This is true when you're talking about trading a bond in the secondary market. But for primary sales (i.e. Treasury auctions for brand-new bonds that didn't exist before), the debtor (Treasury's) effective IR is a function of the sale price.
The ECB has been massively inflating the Euro by buying sovereign debt, with the express policy of pushing yields into negative territory so that people invest in riskier assets. OF COURSE that drops the yields of Italian government debt far below what the actual risk is.
This isn't an expression from the collective conscious about the US' finances. wow. or at least it HADN'T been, until now. How long have you been following the debt markets? Your perspective lacks history of anything beyond 3 years...
I'm impressed by how high these rates are. The US 10-year bonds pay 2.9%, according to the top post in this thread. Remarkable. According to Bloomberg, the US pays interest rates like Italy, nearly ten times as high as those of Germany.
https://www.bloomberg.com/quote/GBTPGR10:IND https://www.bloomberg.com/quote/GDBR10:IND https://www.bloomberg.com/quote/USGG10YR:IND