Nobody wants U.S. Treasury bonds(semafor.com)
semafor.com
Nobody wants U.S. Treasury bonds
https://www.semafor.com/article/11/28/2023/nobody-wants-us-treasury-bonds
31 comments
Correct that is my understanding as well. Same with MBS. They are just letting bonds mature and roll off the balance sheet.
That is the same as selling them. The redemptions are replaced by new debt that others will buy
[deleted]
I think this is the entire idea aimed at curbing inflation, right? If the government can't borrow money, they can't spend money. If they can't spend money, suppliers won't invest in upgrading their factories (or hiring more expensive programmers, or whatever). The companies that make factory upgrades won't be buying things. Workers anywhere in the value chain aren't going to get raises or bonuses, and thus won't be buying anything. Since they're not buying anything, companies that make those things won't be expanding. With too many things and not enough buyers, prices go down so the things can be gotten rid of. That all is the entire idea; in 2020, we panicked and gave everyone free money. They used it to bid up the price on everything. "I'm scared I might not be able to wipe my butt, so sure, I'll buy a $20 roll of toilet paper. It's not even real money that I worked for!" Now toilet paper costs $20. Because people valued their money less than they used to, the price of things they valued increased.
Now the Fed is trying to correct that effect, by making it hard to get money, so people value it more. By all accounts, it's worked. Inflation is under control, and outside of the software field, the economy is going great (even with two wars going on). People just aren't tripping over each other to bid up the price of anything and everything anymore. That's exactly the intended effect.
I definitely like it when everyone has free money. People can't make money by parking it in savings accounts, so they have to go out into the world and hire people to make them crazy stuff to sell. As someone who makes stuff, I think this great!
I think the author of this article feels the same way, but doesn't think it's a temporary correction, but rather the end of America as we know it. I doubt this is the end of America as we know it. Rather, we're just pumping the brakes on a bubble before the bubble pops. Eventually the government will want to buy stuff, people will loan them money at a lower rate, and the whole cycle begins anew. Note to self: next time, buy a house when rates are 2%.
Now the Fed is trying to correct that effect, by making it hard to get money, so people value it more. By all accounts, it's worked. Inflation is under control, and outside of the software field, the economy is going great (even with two wars going on). People just aren't tripping over each other to bid up the price of anything and everything anymore. That's exactly the intended effect.
I definitely like it when everyone has free money. People can't make money by parking it in savings accounts, so they have to go out into the world and hire people to make them crazy stuff to sell. As someone who makes stuff, I think this great!
I think the author of this article feels the same way, but doesn't think it's a temporary correction, but rather the end of America as we know it. I doubt this is the end of America as we know it. Rather, we're just pumping the brakes on a bubble before the bubble pops. Eventually the government will want to buy stuff, people will loan them money at a lower rate, and the whole cycle begins anew. Note to self: next time, buy a house when rates are 2%.
But how does a trillion in interest payments a year play into this?
We did not have this big of an interest payment 10 years ago.
We did not have this big of an interest payment 10 years ago.
Fed collects interest and give it free back to US government. At this point, Fed is hoarding a lot of US debts to maintain liquidity and keeping interest from spiking up. Joe prints $, Fed buys up the debts without question.
>(even with two wars going on)
https://en.wikipedia.org/wiki/List_of_ongoing_armed_conflict...
https://en.wikipedia.org/wiki/List_of_ongoing_armed_conflict...
Hmmm.
7yr auction today: 95.3B tendered, 39.0B accepted. 2yr auction yesterday: 136.9B tendered, 54.0B accepted
20yr auction on 11/20: 41.2B tendered, 16.0B accepted
Seems like there is quite a bit of demand to me.
(edit to add 20yr)
7yr auction today: 95.3B tendered, 39.0B accepted. 2yr auction yesterday: 136.9B tendered, 54.0B accepted
20yr auction on 11/20: 41.2B tendered, 16.0B accepted
Seems like there is quite a bit of demand to me.
(edit to add 20yr)
Used to be near 100% takers. Those are new debts. The old debts being sold off actively and Fed had to intervene to buy up. Things are very bad right now. Just take whatever published values especially by Uncle Sam at CCP-level type of dishonesty. Look at some properties sold price, it is stale. A lot of local governments forbid publishing of those values. Look at unemployment rate, it is basically so different to during Carter era. Carter would have been doing extremely well with today's definition. Warren hoarding 120B for the coming raids. Same with many. Expect Joe to invoke wars (maybe Iraq, or Iran or even China-Taiwan) to stimulatereal gdp).
I came here to say this. Rates are high because of Fed Funds expectations. Also, rates have been coming down since mid-October
https://fred.stlouisfed.org/graph/fredgraph.png?g=1bU5a
This is a terrible article from someone with no understanding of debt security markets.
https://fred.stlouisfed.org/graph/fredgraph.png?g=1bU5a
This is a terrible article from someone with no understanding of debt security markets.
So at least the title is complete hogwash
Would have been a good article a month ago. Now, from today's Bloomberg:
The most-active investors in the Treasury market are as bullish as they’ve ever been, according to a weekly survey conducted by JPMorgan Chase & Co. since 1991.
JPMorgan’s Treasury client survey for the week ended Nov. 27 found that 78% of active clients were positioned long relative to their benchmark, up from 56% the previous week. None of them were positioned short for a second straight week, for a 78% net long position that was the biggest in the history of the survey. The remaining respondents were neutral.
The most-active investors in the Treasury market are as bullish as they’ve ever been, according to a weekly survey conducted by JPMorgan Chase & Co. since 1991.
JPMorgan’s Treasury client survey for the week ended Nov. 27 found that 78% of active clients were positioned long relative to their benchmark, up from 56% the previous week. None of them were positioned short for a second straight week, for a 78% net long position that was the biggest in the history of the survey. The remaining respondents were neutral.
I've got plenty of them. Happy to hold them to maturity (3-6 months) for a guaranteed 5.5%
Those are not treasury bonds. They’re treasury bills. The nomenclature changes based on the term. Two years or less are bills. Ten year or less are notes. The rest are bonds.
Nobody wants bonds.
Nobody wants bonds.
The article is about Treasury bonds (maturities of 20-30 years), not Treasury notes (maturities of 2-10 years) or bills (maturities <= 1 year). You're holding Treasury bills. This is a technicality, but one that matters in the context of the article and this comment thread. The article's saying that investors are dumping Treasury bonds (long-term securities) for Treasury bills (short-term securities) which pay higher interest rates at lower risk levels. Your post is corroborating it.
what's the benefit to this over a CD, which have similar yields (and can be locked in for longer terms)? Or a savings account event which several now offer 5% rates
If you live in a state with income taxes, there's no State-level income tax on Treasury Bonds.
There's also far more liquidity. You can easily transfer the Treasury Bonds around and sell them (of course, if the %yield changes, you could sell them for more... or less... than you originally paid).
There's also far more liquidity. You can easily transfer the Treasury Bonds around and sell them (of course, if the %yield changes, you could sell them for more... or less... than you originally paid).
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The long term yield on treasuries is the long term expected return.
> “You can buy a 6-month T-bill that’s yielding north of 5%. Why wouldn’t you buy that instead of a long bond that’s yielding 4¾?”
Clearly people do want them, then. So much so they'll pay a 1%+ premium to be locked into the certainty of a long term treasury return rather than gamble short term rates will forever stay higher.
The current 30 year yield is 4.5%, and that's almost 0.5% lower than at the start of the month.
The FED taking a pause on rates was not despite the Silicon Valley Bank collapse earlier in the year, but because of it - banks contracted balance sheets, money is created via lending, as a response, meaning the Fed could take a pause as the banking sector was doing what rates would otherwise do in cooling money creation.
> And bond portfolios are getting absolutely hammered. The longest-dated Treasury bonds are in a bear market worse than the dot-com bust and almost as bad as 2008.
To check that, I looked at the FED yield curve which shows the prices of bonds , expressed in interest rates. Here: https://home.treasury.gov/resource-center/data-chart-center/...
Yields have decreased (prices risen) across the board since the start of the month. The end of October was in fact the highest yield (lowest price) all year.
Is the article 28 days too late?
Is cutting negligent reporting with political anecdote (the US being able to borrow (unsecured!, though repossession would be difficult) in perpetuity, control it's interest rate, and have its own currency, does not make an analogy with household finances/borrowing make - aside from the word 'borrow' they're quite different ideas) useful?
Does crossing the web design of the Financial Times and Wall Street Journal fool a reader into thinking this is in any way credible news?
> “You can buy a 6-month T-bill that’s yielding north of 5%. Why wouldn’t you buy that instead of a long bond that’s yielding 4¾?”
Clearly people do want them, then. So much so they'll pay a 1%+ premium to be locked into the certainty of a long term treasury return rather than gamble short term rates will forever stay higher.
The current 30 year yield is 4.5%, and that's almost 0.5% lower than at the start of the month.
The FED taking a pause on rates was not despite the Silicon Valley Bank collapse earlier in the year, but because of it - banks contracted balance sheets, money is created via lending, as a response, meaning the Fed could take a pause as the banking sector was doing what rates would otherwise do in cooling money creation.
> And bond portfolios are getting absolutely hammered. The longest-dated Treasury bonds are in a bear market worse than the dot-com bust and almost as bad as 2008.
To check that, I looked at the FED yield curve which shows the prices of bonds , expressed in interest rates. Here: https://home.treasury.gov/resource-center/data-chart-center/...
Yields have decreased (prices risen) across the board since the start of the month. The end of October was in fact the highest yield (lowest price) all year.
Is the article 28 days too late?
Is cutting negligent reporting with political anecdote (the US being able to borrow (unsecured!, though repossession would be difficult) in perpetuity, control it's interest rate, and have its own currency, does not make an analogy with household finances/borrowing make - aside from the word 'borrow' they're quite different ideas) useful?
Does crossing the web design of the Financial Times and Wall Street Journal fool a reader into thinking this is in any way credible news?
People will want the long term bonds later. Right now it's better to have the short terms bills and notes, because interest rates are showing no sign of going down anytime soon.
As soon as that changes, even a glimmer of the possibility, and people will rush into the long term high yield bonds. Of course, as soon as they do that the prices will go up - so you have to beat them to it.
As soon as that changes, even a glimmer of the possibility, and people will rush into the long term high yield bonds. Of course, as soon as they do that the prices will go up - so you have to beat them to it.
> Ricchiuto said there are new sources of Treasury demand that will keep the market humming. Tech companies are sitting on hoards of cash, and some experts think China’s trade surplus is as much as $300 billion bigger than the official numbers suggest.
Pretty strange to think that tech companies would invest cash here. SVB collapse was fueled by them holding a lot of their portfolio in these bonds. If banks can't hold them to maturity then I really doubt tech companies could.
Pretty strange to think that tech companies would invest cash here. SVB collapse was fueled by them holding a lot of their portfolio in these bonds. If banks can't hold them to maturity then I really doubt tech companies could.
Tech companies don’t hold deposits from panic-y consumers.
I read what the article said
but all I can think of is that
everybody is betting on
inflation getting worse
which means the Federal Reserve
will continue raising rates
which means if you buy a long term bond now
you are worse off than holding literal cash
and buying bonds in n months.
I hope I am wrong. I hope we won't see more interest rate hikes but wishes are not fishes.
I hope I am wrong. I hope we won't see more interest rate hikes but wishes are not fishes.
TIPS and I-bonds are still Treasury Bonds.
So... on the contrary. People have been selling TIPS and I-Bonds because inflation has come down from 9% to only 3%ish these days, so if you're buying inflation-based bonds, you're losing out significantly.
So... on the contrary. People have been selling TIPS and I-Bonds because inflation has come down from 9% to only 3%ish these days, so if you're buying inflation-based bonds, you're losing out significantly.
Well most in the market are now on the other side of that bet but even argument's sake and say it is true, there is a fairly good chance that the bond you buy today will be better than the one n months from now because the consensus was wrong (ie, economy slowed, fed cut, some unexpected headwinds, etc).
This is no different than sitting on the sidelines trying to get into a stock at the perfect point or waiting on 'the inevitable sell off'. Maybe it happens, happy days. Maybe it doesn't, very sad days.
This is no different than sitting on the sidelines trying to get into a stock at the perfect point or waiting on 'the inevitable sell off'. Maybe it happens, happy days. Maybe it doesn't, very sad days.
I'm sorry, what? Do you have any idea whatsoever you're talking about? Why would cash, with a nominal value of x, be worth more in in a year than cash with a nominal value of x plus some interest? Inflation aside, as this affects the value of your holdings in any case, in what universe are you better off doing nothing than earning a return?
On this point, the other guy was correct.
Cash today is worth 5.25% from a money market fund (aka: the overnight lending rate). 10Y Bonds are only 4.5% or something.
So "cash" (where "cash" means a money market fund, which is a generally accepted definition of "cash") is beating the 10Y and 30Y at the moment.
Cash today is worth 5.25% from a money market fund (aka: the overnight lending rate). 10Y Bonds are only 4.5% or something.
So "cash" (where "cash" means a money market fund, which is a generally accepted definition of "cash") is beating the 10Y and 30Y at the moment.
It can, it just depends. Take these hypothetical scenarios for example:
Scenario 1: Buy 10Y today, @4.5% interest.
Scenario 2: Hold that money as cash for 5 years, and then use it to buy 5Y when it's yielding 17% interest.
Scenario 2 will yield a greater ROI after the 10 years. Obviously, there's no way of knowing exactly what the future will hold (many other scenarios are also possible). It just all depends.
Scenario 1: Buy 10Y today, @4.5% interest.
Scenario 2: Hold that money as cash for 5 years, and then use it to buy 5Y when it's yielding 17% interest.
Scenario 2 will yield a greater ROI after the 10 years. Obviously, there's no way of knowing exactly what the future will hold (many other scenarios are also possible). It just all depends.
Perhaps the misconception is the idea that you could buy 10Y now and then sell them later for the same value if a better rate comes along, i.e, mistaking 10Y bonds for "cash" and not realising they can drop in value.
That's not my understanding. The Fed is allowing bonds to mature and roll off the balance sheet - without replacing them - but I don't believe they're selling them on the market.
> In response to inflation running well above its long-run target, the Fed began unwinding its accommodative monetary policy this year. This entailed ending QE in March and then beginning QT in June. When QE ended, the Fed reinvested any maturing securities to maintain the size of its balance sheet. With QT, the Fed stopped reinvesting up to $30 billion in maturing Treasuries and $17.5 billion in maturing MBS every month, passively shrinking its assets as those securities "roll off" without being replaced. [1]
[1] https://www.richmondfed.org/publications/research/econ_focus... (Q3 2022)