5 ms·

Ummmmm, you’ve got it around the wrong way friend. The central banks are buying the bonds. You had already taken on the risk of buying the bond. The fed then

Ummmmm, you’ve got it around the wrong way friend. The central banks are buying the bonds. You had already taken on the risk of buying the bond. The fed then came and said, “I’d like to buy your bond and give you 20 years of interest payments on top of your principal.”

fwdpropaganda 9y ago
If you have a 30 year bond and hold it for 10 years then you get 10 years worth of interest payments. When the fed (or anyone else) comes, they buy it at the market price of a 20 year bond (30 year bond after 10 years is a 20 year bond). You don't get any interest payment on top of that. It's still not free money, you took the risk of holding a 30 year bond for 10 years. And it's not "on top of the principal". They don't give you the principal for your 20 year bond, they give you the market price. Which fluctuates, and hence you're taking a risk and being rewarded for it.
- freejulian 9y ago
  Suppose there is a new issue zero-coupon 10 year bond with par value of $1000. The price for that bond is roughly $750 which gives me a 6%/yr return at maturity. I buy it, and the fed comes around 1 month later and decides they want to do QE. They decide the 10 year yield is what they want to target so they go on the market and start buying bonds. The price goes from $750 to $900 in a short time. I can now take my bond I purchased for $750 and sell it for $900 if I desired — this is the same as returning my principal plus a few years of interest payments after having held the bond for just a few months. The fed printed money and I directly benefited.
  - grenoire 9y ago
    What..? Where do you even get that $900 from? If it's at 6% annual then that's 0.4867% monthly, which would then be priced at $753.65.
    - freejulian 9y ago
      What? I said the initial price of the bond was roughly 750$ which represented a 6% yield. 900 comes from QE. If the fed wants a 10 year interest rate of 1%, they would buy bonds on the market until the price rose from 750$ to 900$. And that is exactly what they did with QE 1-3. No wonder they got away with it... no one here even understands how QE worked.
      - fwdpropaganda 9y ago
        > no one here even understands how QE worked You clearly don't. If you buy a 10 year bond for $750 and wait for 1 month, now you have a 9year,11months bond, which will have a price slightly below $750, and that's what the fed will give you for it. YOU made up that they will pay $900, but they won't.
        freejulian 9y ago
        You’re assuming there’s a coupon. I explicitly said these were zero coupon. In this case the price at 9 year 11 month is higher than 750$, dumbass. The entire point of QE is to increase the bond price, thereby reducing the yield. You don’t have a clue.
        fwdpropaganda 9y ago
        But.... you're the one who's complaining that you missed out of assets booming due to QE. So surely if anyone doesn't have a clue it's you, right? I did quite well over the past decade.
        freejulian 9y ago
        Oh look, the guy who doesn’t understand how bonds work is still here! Let’s all listen to his uninformed opinion! I’ve been buying bitcoin since 2014 since I did understand what the fed was doing. I did pretty alright.

fwdpropaganda 9y ago

If you have a 30 year bond and hold it for 10 years then you get 10 years worth of interest payments. When the fed (or anyone else) comes, they buy it at the market price of a 20 year bond (30 year bond after 10 years is a 20 year bond). You don't get any interest payment on top of that. It's still not free money, you took the risk of holding a 30 year bond for 10 years. And it's not "on top of the principal". They don't give you the principal for your 20 year bond, they give you the market price. Which fluctuates, and hence you're taking a risk and being rewarded for it.

freejulian 9y ago
Suppose there is a new issue zero-coupon 10 year bond with par value of $1000. The price for that bond is roughly $750 which gives me a 6%/yr return at maturity. I buy it, and the fed comes around 1 month later and decides they want to do QE. They decide the 10 year yield is what they want to target so they go on the market and start buying bonds. The price goes from $750 to $900 in a short time. I can now take my bond I purchased for $750 and sell it for $900 if I desired — this is the same as returning my principal plus a few years of interest payments after having held the bond for just a few months. The fed printed money and I directly benefited.
- grenoire 9y ago
  What..? Where do you even get that $900 from? If it's at 6% annual then that's 0.4867% monthly, which would then be priced at $753.65.
  - freejulian 9y ago
    What? I said the initial price of the bond was roughly 750$ which represented a 6% yield. 900 comes from QE. If the fed wants a 10 year interest rate of 1%, they would buy bonds on the market until the price rose from 750$ to 900$. And that is exactly what they did with QE 1-3. No wonder they got away with it... no one here even understands how QE worked.
    - fwdpropaganda 9y ago
      > no one here even understands how QE worked You clearly don't. If you buy a 10 year bond for $750 and wait for 1 month, now you have a 9year,11months bond, which will have a price slightly below $750, and that's what the fed will give you for it. YOU made up that they will pay $900, but they won't.
      - freejulian 9y ago
        You’re assuming there’s a coupon. I explicitly said these were zero coupon. In this case the price at 9 year 11 month is higher than 750$, dumbass. The entire point of QE is to increase the bond price, thereby reducing the yield. You don’t have a clue.
        fwdpropaganda 9y ago
        But.... you're the one who's complaining that you missed out of assets booming due to QE. So surely if anyone doesn't have a clue it's you, right? I did quite well over the past decade.
        freejulian 9y ago
        Oh look, the guy who doesn’t understand how bonds work is still here! Let’s all listen to his uninformed opinion! I’ve been buying bitcoin since 2014 since I did understand what the fed was doing. I did pretty alright.