4 ms·

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 maturit

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
        Now: > (...) I did understand what the fed was doing. Earlier (https://news.ycombinator.com/item?id=16604736 https://news.ycombinator.com/item?id=16604736) > (...) had I realized what the fed was doing when QE was happening I would have definitely done that. You wanted to pretend you're a victim from the evil FED while at the same time pretending you're smart enough to understand what's going on. You're full of shit. Don't waste my time.

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
        Now: > (...) I did understand what the fed was doing. Earlier (https://news.ycombinator.com/item?id=16604736 https://news.ycombinator.com/item?id=16604736) > (...) had I realized what the fed was doing when QE was happening I would have definitely done that. You wanted to pretend you're a victim from the evil FED while at the same time pretending you're smart enough to understand what's going on. You're full of shit. Don't waste my time.