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Ah, so this is basically the market saying the US government's ability / willingness to pay debts today is greater than it will be in the future? Or is it simp

Ah, so this is basically the market saying the US government's ability / willingness to pay debts today is greater than it will be in the future? Or is it simply about interest rates, I guess, since higher interest rates cool the market and lower interest rates warm the market. So investors are thinking a recession is coming and the Fed will need to lower interest rates to stimulate.

bunderbunder 8y ago
I don't think it's that - US Treasury Securities are always regarded as being nearly as safe as cash. But, in a recession, the stock market tends to nose dive, which prompts a lot of people to flee to fixed-income securities because they're viewed as being safer. Which would also drive down yields.
- madamelic 8y ago
  Great, thanks for your help. I'm understanding much better now about how bonds are priced and how it relates to their yield. :)
- kgwgk 8y ago
  > US Treasury Securities are always regarded as being nearly as safe as cash Not always: https://en.m.wikipedia.org/wiki/United_States_federal_government_credit-rating_downgrades https://en.m.wikipedia.org/wiki/United_States_federal_govern...
  - kbutler 8y ago
    From the page you linked: "Market consequences ... U.S. treasury bonds, which had been the subject of the downgrade, actually rose in price and the dollar gained in value against the Euro and the British pound, indicating a general flight to safe assets amid concerns about a European debt crisis.[31]" Basically, no one believes rating agencies with respect to the US paying its debts - but they do believe that if the US government is in chaos, it will be bad for the world economy. One should also remember that US bonds are denominated in US dollars, which the US government can print. Also, if you're comparing to "cash" you probably mean "US dollars" which are backed by the "full faith and credit" of...the US government.
    - User23 8y ago
      For many years the US federal government wasn't rated at all, because it was correctly seen as the absurdity that it is[1]. [1]https://tradingeconomics.com/united-states/rating https://tradingeconomics.com/united-states/rating

bunderbunder 8y ago

I don't think it's that - US Treasury Securities are always regarded as being nearly as safe as cash. But, in a recession, the stock market tends to nose dive, which prompts a lot of people to flee to fixed-income securities because they're viewed as being safer. Which would also drive down yields.

madamelic 8y ago
Great, thanks for your help. I'm understanding much better now about how bonds are priced and how it relates to their yield. :)
kgwgk 8y ago
> US Treasury Securities are always regarded as being nearly as safe as cash Not always: https://en.m.wikipedia.org/wiki/United_States_federal_government_credit-rating_downgrades https://en.m.wikipedia.org/wiki/United_States_federal_govern...
- kbutler 8y ago
  From the page you linked: "Market consequences ... U.S. treasury bonds, which had been the subject of the downgrade, actually rose in price and the dollar gained in value against the Euro and the British pound, indicating a general flight to safe assets amid concerns about a European debt crisis.[31]" Basically, no one believes rating agencies with respect to the US paying its debts - but they do believe that if the US government is in chaos, it will be bad for the world economy. One should also remember that US bonds are denominated in US dollars, which the US government can print. Also, if you're comparing to "cash" you probably mean "US dollars" which are backed by the "full faith and credit" of...the US government.
  - User23 8y ago
    For many years the US federal government wasn't rated at all, because it was correctly seen as the absurdity that it is[1]. [1]https://tradingeconomics.com/united-states/rating https://tradingeconomics.com/united-states/rating