4 ms·

U.S. 10-Year Treasury Yield Closes at All-Time Low

17 points by applecore 10y ago

chakalakasp 10y ago
I love the WSJ, but it's paywall and I don't subscribe. Here is a Reuters link (though probably less in depth). http://www.reuters.com/article/idUSL8N19R18Z http://www.reuters.com/article/idUSL8N19R18Z
afarrell 10y ago
Wouldn't this mean that reducing the deficit would be a bad idea? Shouldn't we increase the deficit and spend money on things like filling the Strategic Petroleum Reserve? Especially if we are planning to start selling from it in 2018... http://www.bloomberg.com/news/articles/2015-10-27/u-s-plans-to-sell-down-strategic-oil-reserve-to-raise-cash http://www.bloomberg.com/news/articles/2015-10-27/u-s-plans-...
- jbooth 10y ago
  Yes, that and infrastructure to create jobs, demand, and fix a bunch of things that need fixing. But, unfortunately, most national politicians are against it because politics.
elgabogringo 10y ago
"The United States has become an economy dominated by finance and governed by the Federal Reserve, which determines what money is worth and who gets it. The Fed has reduced interest rates to near zero. When anything is free, it is distributed by queue and only the privileged people in the front of the line get any. Some 62 percent of Fed money just flows back to the Treasury and two-thirds of the rest goes to S&P 500 companies that use it mostly to buy up their own shares. This is the first economic recovery on record in which small businesses have actually been shedding jobs." http://www.sfgate.com/news/article/The-unicorn-economy-and-the-disturbing-plight-of-7960412.php http://www.sfgate.com/news/article/The-unicorn-economy-and-t...
jeffwass 10y ago
In case people are wondering about "yield" : in a nutshell yields and prices are inversely related, so treasuries are priced at all-time highs. [+] Yield is effectively the return one would get by buying a bond at market price and holding it to maturity, with a guaranteed payment of interest coupons as well as principal at maturity. It tells you something about both the interest rate (very low now) and credit quality of the issuer (very low risk of non-payment for the US Treasury). Since bonds can have different maturities and interest coupons, yield is one way to compare returns. Government bonds and very-high-quality corporates are typically the lowest risk. Conversely "High Yield" bonds (aka junk bonds) are high risk, offering higher returns to the investor as an incentive for taking on a riskier investment (eg, company may not be able to pay back the principal). What this news means : people are willing to buy treasuries at very high prices, expecting very little in return for holding them. Typically this characterises a "flight to quality", meaning investors are more worried about assets losing value than earning returns. Ie, they're willing to give up potential returns of "risky" assets like stocks and corporate bonds that may lose value in a stressed market, and instead hold treasuries that earn very little. [+] I'm hesitant to say prices are at all-time highs because actual prices would have been higher back when treasuries paid a higher interest coupon. But using yield to compare, we can say some sort of "pseudo treasury price" is at an all-time high.
- ChuckMcM 10y ago
  It is a good summary. I'd disagree slightly on your "what it means" paragraph. I'd phrase it a bit more actively. It means people are buying treasury notes instead of using that capital somewhere else. And that means they are afraid that investing it any other way will likely result in it being lost (fear driven). That can indicate a couple of things, one that there is so much money out there that these people don't care what return it generates, as long as its available 10 years from now. Or it can indicates how little people think of the current entrepreneur ecosystem such that there is nothing they are willing to bet on that would earn them more than the few dollars per year they would get from treasury bills. Either way that represents a remarkable amount of capital "sitting on the sidelines" with nothing better to do. So what that implies for this audience, is that if you can figure out a way to generate even a slightly better return than treasury notes, and you can do it with modest risk. You will have access to all the capital you need and more. But it is also important to realize that this capital is no longer believing that a startup with an "exit" of any type has that sort of appeal. You need to come up with a startup that pays dividends or something on preferred shares. Basically if you figure out how to pay 3% annual dividends on your preferred shares, combined with a way to exchange shares in a slightly more liquid way than heavy weight funding rounds, you will be able to raise millions.
carsongross 10y ago
Yields are plunging because the crisis of 2008 was never solved and the bandaids that were supposed to tide us over to the recovery are wearing off. Economists don't take debt (private debt, in particular) seriously, so they don't know why we aren't recovering like their models say we should be. Steve Keen just put up a fantastic talk on this: https://www.youtube.com/watch?v=iY5rto-ivoA https://www.youtube.com/watch?v=iY5rto-ivoA Until we get the private debt issue resolved (Keen's suggestion is a modern debt jubilee) we can expect to follow japan into the abyss.
- oxide 10y ago
  what would a debt jubilee consist of? apologies in advance if this is a dumb question.
  - carsongross 10y ago
    It isn't at all. Here is an overview of Keen's position: http://www.debtdeflation.com/blogs/2012/07/22/the-crisis-in-1000-words-or-less/ http://www.debtdeflation.com/blogs/2012/07/22/the-crisis-in-... And here is a video on what a modern debt jubilee would look like: https://www.youtube.com/watch?v=rtSs9RIoLHQ https://www.youtube.com/watch?v=rtSs9RIoLHQ
- jldugger 10y ago
  Household private debt, to the extent that it is a problem, appears to be a diminishing factor: https://fred.stlouisfed.org/series/TDSP https://fred.stlouisfed.org/series/TDSP & https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N It seems far more likely that yields are plunging because 1) Brexit is threatening to tank itself, the EU and their trading partners 2) US treasuries are unlikely to be affected by this ("flight to quality") 3) institutional investors are willing to lock in a 10 year rate now by buying treasuries because rates are unlikely to go higher until #1 is resolved, and might even go lower instead
  - carsongross 10y ago
    You are cherry-picking your graph durations. Private debt to GDP is still tremendously high by historical measures: http://www.debtdeflation.com/blogs/wp-content/uploads/2012/01/010212_2140_TheDebtwatc1.png http://www.debtdeflation.com/blogs/wp-content/uploads/2012/0... Really, read (or at least watch) Keen. He's the only economist whose models make any sense of the Japanese experience and he's correctly predicted economic crises using only private debt to GDP ratios quite successfully. The most interesting thing about his models are that they predict a moderation before the crisis, which is exactly what we've seen. It's revolutionary work. But I do agree that the Brexit (and the upcoming earnings shoah) are the proximate causes of this rate dip. The private debt issue is the underlying problem keeping them so low in the first place.

17 points by applecore 10y ago

I love the WSJ, but it's paywall and I don't subscribe. Here is a Reuters link (though probably less in depth). http://www.reuters.com/article/idUSL8N19R18Z http://www.reuters.com/article/idUSL8N19R18Z

afarrell 10y ago

Wouldn't this mean that reducing the deficit would be a bad idea? Shouldn't we increase the deficit and spend money on things like filling the Strategic Petroleum Reserve? Especially if we are planning to start selling from it in 2018... http://www.bloomberg.com/news/articles/2015-10-27/u-s-plans-to-sell-down-strategic-oil-reserve-to-raise-cash http://www.bloomberg.com/news/articles/2015-10-27/u-s-plans-...

jbooth 10y ago
Yes, that and infrastructure to create jobs, demand, and fix a bunch of things that need fixing. But, unfortunately, most national politicians are against it because politics.

elgabogringo 10y ago

"The United States has become an economy dominated by finance and governed by the Federal Reserve, which determines what money is worth and who gets it. The Fed has reduced interest rates to near zero. When anything is free, it is distributed by queue and only the privileged people in the front of the line get any. Some 62 percent of Fed money just flows back to the Treasury and two-thirds of the rest goes to S&P 500 companies that use it mostly to buy up their own shares. This is the first economic recovery on record in which small businesses have actually been shedding jobs." http://www.sfgate.com/news/article/The-unicorn-economy-and-the-disturbing-plight-of-7960412.php http://www.sfgate.com/news/article/The-unicorn-economy-and-t...

jeffwass 10y ago

In case people are wondering about "yield" : in a nutshell yields and prices are inversely related, so treasuries are priced at all-time highs. [+] Yield is effectively the return one would get by buying a bond at market price and holding it to maturity, with a guaranteed payment of interest coupons as well as principal at maturity. It tells you something about both the interest rate (very low now) and credit quality of the issuer (very low risk of non-payment for the US Treasury). Since bonds can have different maturities and interest coupons, yield is one way to compare returns. Government bonds and very-high-quality corporates are typically the lowest risk. Conversely "High Yield" bonds (aka junk bonds) are high risk, offering higher returns to the investor as an incentive for taking on a riskier investment (eg, company may not be able to pay back the principal). What this news means : people are willing to buy treasuries at very high prices, expecting very little in return for holding them. Typically this characterises a "flight to quality", meaning investors are more worried about assets losing value than earning returns. Ie, they're willing to give up potential returns of "risky" assets like stocks and corporate bonds that may lose value in a stressed market, and instead hold treasuries that earn very little. [+] I'm hesitant to say prices are at all-time highs because actual prices would have been higher back when treasuries paid a higher interest coupon. But using yield to compare, we can say some sort of "pseudo treasury price" is at an all-time high.

ChuckMcM 10y ago
It is a good summary. I'd disagree slightly on your "what it means" paragraph. I'd phrase it a bit more actively. It means people are buying treasury notes instead of using that capital somewhere else. And that means they are afraid that investing it any other way will likely result in it being lost (fear driven). That can indicate a couple of things, one that there is so much money out there that these people don't care what return it generates, as long as its available 10 years from now. Or it can indicates how little people think of the current entrepreneur ecosystem such that there is nothing they are willing to bet on that would earn them more than the few dollars per year they would get from treasury bills. Either way that represents a remarkable amount of capital "sitting on the sidelines" with nothing better to do. So what that implies for this audience, is that if you can figure out a way to generate even a slightly better return than treasury notes, and you can do it with modest risk. You will have access to all the capital you need and more. But it is also important to realize that this capital is no longer believing that a startup with an "exit" of any type has that sort of appeal. You need to come up with a startup that pays dividends or something on preferred shares. Basically if you figure out how to pay 3% annual dividends on your preferred shares, combined with a way to exchange shares in a slightly more liquid way than heavy weight funding rounds, you will be able to raise millions.

carsongross 10y ago

Yields are plunging because the crisis of 2008 was never solved and the bandaids that were supposed to tide us over to the recovery are wearing off. Economists don't take debt (private debt, in particular) seriously, so they don't know why we aren't recovering like their models say we should be. Steve Keen just put up a fantastic talk on this: https://www.youtube.com/watch?v=iY5rto-ivoA https://www.youtube.com/watch?v=iY5rto-ivoA Until we get the private debt issue resolved (Keen's suggestion is a modern debt jubilee) we can expect to follow japan into the abyss.

oxide 10y ago
what would a debt jubilee consist of? apologies in advance if this is a dumb question.
- carsongross 10y ago
  It isn't at all. Here is an overview of Keen's position: http://www.debtdeflation.com/blogs/2012/07/22/the-crisis-in-1000-words-or-less/ http://www.debtdeflation.com/blogs/2012/07/22/the-crisis-in-... And here is a video on what a modern debt jubilee would look like: https://www.youtube.com/watch?v=rtSs9RIoLHQ https://www.youtube.com/watch?v=rtSs9RIoLHQ
jldugger 10y ago
Household private debt, to the extent that it is a problem, appears to be a diminishing factor: https://fred.stlouisfed.org/series/TDSP https://fred.stlouisfed.org/series/TDSP & https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N It seems far more likely that yields are plunging because 1) Brexit is threatening to tank itself, the EU and their trading partners 2) US treasuries are unlikely to be affected by this ("flight to quality") 3) institutional investors are willing to lock in a 10 year rate now by buying treasuries because rates are unlikely to go higher until #1 is resolved, and might even go lower instead
- carsongross 10y ago
  You are cherry-picking your graph durations. Private debt to GDP is still tremendously high by historical measures: http://www.debtdeflation.com/blogs/wp-content/uploads/2012/01/010212_2140_TheDebtwatc1.png http://www.debtdeflation.com/blogs/wp-content/uploads/2012/0... Really, read (or at least watch) Keen. He's the only economist whose models make any sense of the Japanese experience and he's correctly predicted economic crises using only private debt to GDP ratios quite successfully. The most interesting thing about his models are that they predict a moderation before the crisis, which is exactly what we've seen. It's revolutionary work. But I do agree that the Brexit (and the upcoming earnings shoah) are the proximate causes of this rate dip. The private debt issue is the underlying problem keeping them so low in the first place.