4 ms·

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 ef

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.

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.