6 ms·

Inflation is currently much higher than treasury bond rates and they are selling fine. Your claim is obviously false. Inflation was 7% the stated goal inflation

Inflation is currently much higher than treasury bond rates and they are selling fine. Your claim is obviously false. Inflation was 7% the stated goal inflation rate is 2%. The 5 year t bill is 1.7%.

idontwantthis 5y ago
US Bonds are considered basically the safest investment in the world, so in a condition where they lose you money, they are still better than either not investing (losing even more to inflation) or risking on something with higher returns.
- nybble41 5y ago
  > US Bonds are considered basically the safest investment in the world… Unless you're a U.S. (net) taxpayer, in which case you're paying yourself back and any interest you might get from the bond is purely illusory. It's a good deal if you're not a U.S. taxpayer, though.
- lumost 5y ago
  Alternately, on average all investors lose money in real terms. There is no guarantee that investments yield a positive return.
- onionisafruit 5y ago
  At some point the second safest investment in the world will have 2x the return and nobody will be interested in the safest.
  - heavyset_go 5y ago
    Even in that scenario, it'll still serve as a hedge.
  - chii 5y ago
    some institutions need to hold the safest investment, since they might have sudden need to use it as cash - places like insurance companies, or companies that are holding on to liabilities that have a future date, but need to have assets today on hand (for paying in the future date). You cannot hold equities, or bonds which could lose value for such purposes.
- adam_arthur 5y ago
  Only the coupon payment is the safe part. If you buy a 10y treasury that yields 2%, and yields run to 4%, you'll lose a lot of money and be worse off than if you were in cash
  - manquer 5y ago
    Only if inflation was less you would be better of with cash in that scenario. At 7% that is still better deal than cash
    - adam_arthur 5y ago
      That's only true if you're comparing holding a bond until expiry vs holding cash for the same time. Assume I have a 10y bond. I can buy it today for 2%. Or, I can sit in cash. Next month the yield goes up to 3%. I buy it then with my cash. I made more money by holding cash rather than the bond. Cashflowing assets are only a good inflation hedge after they've been valued using an appropriate discount rate for that inflation. Both equities and bonds are not valued appropriately for the level of inflation we have, because market participants still believe in transitory. But that belief is being shaken. Personally, I would hold cash over bonds or equity right now.
  - dannyw 5y ago
    If you hold for 10 years you'll earn exactly 2% pa.
    - adam_arthur 5y ago
      And if inflation persists at 7% the 10y rate will greatly exceed 2% in a short span of time. So you can be stuck with 2% today, or wait a short amount of time and possibly get 3-4% Bonds are mispriced right now. Of course, just my opinion.
InTheArena 5y ago
You may be mistaking short term and long term trends here. Whats remaining to be seen is how long this glut of inflationary pressures continues. At some point, it's much like a bubble - it is inevitable that things cannot continue that way forever.
shukantpal 5y ago
This is a not-so-smart analysis. The market doesn't think that inflation number will be sustained. However if it does sustain, the $15,000,000,000,000 in debt maturing in less than 5 years will be very hard to refinance at the same interest rates.
- e4e78a06 5y ago
  That's what the Fed buying $120B a month in Treasuries is for. You don't really think people accept negative 5% real yields on their investments? From the article: > For the first four months of the 2022 fiscal year that started Oct. 1, the Treasury reported a deficit of $259 billion, a 65% decline from the year-earlier deficit of $736 billion. At $120B a month basically the entire deficit is being printed away.
  - adam_arthur 5y ago
    The treasury continues to pay coupon payments to the Fed. Though you're right that Fed is partially monetizing deficit spending, that money gets reabsorbed over time through coupon payments. However, Fed typically will repurchase to keep balance sheet stable. Hopefully they actually do QT like they're saying to start reducing the balance sheet
forgingahead 5y ago
Interestingly, we had the Big Short on TV yesterday, and there is a section of the plot where the subprime mortgage defaults were shooting up, but the subprime mortgage bonds prices themselves were also going up.
dcolkitt 5y ago
5 year CPI breakevens are still 2.8%. So the market is still pricing bonds expecting inflation to cool. If inflation persists at 5%+, then bond yields will almost certainly rise.
adam_arthur 5y ago
Bond market seems mispriced, and QE still distorting flows to some extent. If we get a few more bad CPI prints, expect rapid rise in longer term treasury yields. Wouldn't be surprised to see 3% on the 10yr within a few months. Could go even higher if strong evidence of entrenched wage price spiral emerges

Inflation is currently much higher than treasury bond rates and they are selling fine. Your claim is obviously false. Inflation was 7% the stated goal inflation rate is 2%. The 5 year t bill is 1.7%.

idontwantthis 5y ago

US Bonds are considered basically the safest investment in the world, so in a condition where they lose you money, they are still better than either not investing (losing even more to inflation) or risking on something with higher returns.

nybble41 5y ago
> US Bonds are considered basically the safest investment in the world… Unless you're a U.S. (net) taxpayer, in which case you're paying yourself back and any interest you might get from the bond is purely illusory. It's a good deal if you're not a U.S. taxpayer, though.
lumost 5y ago
Alternately, on average all investors lose money in real terms. There is no guarantee that investments yield a positive return.
onionisafruit 5y ago
At some point the second safest investment in the world will have 2x the return and nobody will be interested in the safest.
- heavyset_go 5y ago
  Even in that scenario, it'll still serve as a hedge.
- chii 5y ago
  some institutions need to hold the safest investment, since they might have sudden need to use it as cash - places like insurance companies, or companies that are holding on to liabilities that have a future date, but need to have assets today on hand (for paying in the future date). You cannot hold equities, or bonds which could lose value for such purposes.
adam_arthur 5y ago
Only the coupon payment is the safe part. If you buy a 10y treasury that yields 2%, and yields run to 4%, you'll lose a lot of money and be worse off than if you were in cash
- manquer 5y ago
  Only if inflation was less you would be better of with cash in that scenario. At 7% that is still better deal than cash
  - adam_arthur 5y ago
    That's only true if you're comparing holding a bond until expiry vs holding cash for the same time. Assume I have a 10y bond. I can buy it today for 2%. Or, I can sit in cash. Next month the yield goes up to 3%. I buy it then with my cash. I made more money by holding cash rather than the bond. Cashflowing assets are only a good inflation hedge after they've been valued using an appropriate discount rate for that inflation. Both equities and bonds are not valued appropriately for the level of inflation we have, because market participants still believe in transitory. But that belief is being shaken. Personally, I would hold cash over bonds or equity right now.
- dannyw 5y ago
  If you hold for 10 years you'll earn exactly 2% pa.
  - adam_arthur 5y ago
    And if inflation persists at 7% the 10y rate will greatly exceed 2% in a short span of time. So you can be stuck with 2% today, or wait a short amount of time and possibly get 3-4% Bonds are mispriced right now. Of course, just my opinion.

InTheArena 5y ago

You may be mistaking short term and long term trends here. Whats remaining to be seen is how long this glut of inflationary pressures continues. At some point, it's much like a bubble - it is inevitable that things cannot continue that way forever.

shukantpal 5y ago

This is a not-so-smart analysis. The market doesn't think that inflation number will be sustained. However if it does sustain, the $15,000,000,000,000 in debt maturing in less than 5 years will be very hard to refinance at the same interest rates.

e4e78a06 5y ago
That's what the Fed buying $120B a month in Treasuries is for. You don't really think people accept negative 5% real yields on their investments? From the article: > For the first four months of the 2022 fiscal year that started Oct. 1, the Treasury reported a deficit of $259 billion, a 65% decline from the year-earlier deficit of $736 billion. At $120B a month basically the entire deficit is being printed away.
- adam_arthur 5y ago
  The treasury continues to pay coupon payments to the Fed. Though you're right that Fed is partially monetizing deficit spending, that money gets reabsorbed over time through coupon payments. However, Fed typically will repurchase to keep balance sheet stable. Hopefully they actually do QT like they're saying to start reducing the balance sheet

forgingahead 5y ago

Interestingly, we had the Big Short on TV yesterday, and there is a section of the plot where the subprime mortgage defaults were shooting up, but the subprime mortgage bonds prices themselves were also going up.

dcolkitt 5y ago

5 year CPI breakevens are still 2.8%. So the market is still pricing bonds expecting inflation to cool. If inflation persists at 5%+, then bond yields will almost certainly rise.

adam_arthur 5y ago

Bond market seems mispriced, and QE still distorting flows to some extent. If we get a few more bad CPI prints, expect rapid rise in longer term treasury yields. Wouldn't be surprised to see 3% on the 10yr within a few months. Could go even higher if strong evidence of entrenched wage price spiral emerges