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A lot of people maybe don’t realise how important treasury rates are to their everyday life. You might be thinking “why do I care? I’m not going to go an buy tr

A lot of people maybe don’t realise how important treasury rates are to their everyday life. You might be thinking “why do I care? I’m not going to go an buy treasuries. I don’t hold treasuries. So if they go up, go down, fall off a cliff it doesn’t matter to me. whoop de doo”. To which I say hold on there a second. Firstly you probably do own some treasuries. If you have any kind of pension it will have some treasuries in it. Also if you buy something like a stock etf they will hold their cash in treasuries probably or use treasuries as collateral when they need to do margin trades. Also your credit card, mortgage, car loan anything like that if you hold it is priced at a spread above treasuries. The spread is to take into account how much more risky you are than the US govt. Also say you’re a founder and you’re doing some kind of investment round. Well the investors are going to price your business using a discounted cash flow model as part of their decision-making process. The discount is an interest rate that is calculated using treasuries. Basically you look at the future cash flows and you deduct interest that you could get on such an asset to get an idea of the value of that future cash today. When someone wants to ship a containerload of goods and they accept a bill of trade or whatever that includes a counterparty credit spread which is a spread over treasuries. You heard a lot about the LIBOR scandal a few years back well interbank rates are derived from a credit curve that is bootstrapped using treasury rates. So any kind of cross-currency transaction or thing with fixed or floating interest (even if it’s not in dollars) is likely to be affected by US treasuries. Literally every financial asset is tied in some way to treasuries because a “risk free rate” is at the basis of option pricing, discounting, lending and borrowing, margin, counterparty credit adjustment etc etc.

janis1234 2y ago
Can what you explain what the significance of the US 10 year yield going up is?
- deng 2y ago
  It means that they are not being bought. Normally, if the stock goes down, treasury yields go down because investors use them as safe havens for their money, so there's higher demand for them and hence the yield goes down. So why isn't this happening now? There's probably a bunch of reasons. It seems there's a liquidity problem in the markets, which is also weird because stocks are being sold, so there should be enough liquidity, but it seems people are rather holding on to their cash and not invest in anything. However, it seems still treasuries are being sold like crazy. For a while, even gold went down, which is also highly unusual during a market crisis. One reason that is frequently cited now and also in this article is because some hedge funds have specialized on the so called "basis trade", which I never heard of before. It basically means buying large amount of treasuries and speculating on their futures. In itself, this does not bring much money, but it seems this is done on a huge scale, and it's currently going very wrong. Now they are getting margin-called and need to sell assets. At some point, the FED would normally intervene and buy treasuries. However, the FED still has a ton of treasuries from the COVID crisis on its balance sheets and I think they will not intervene until the market has gone quite a bit lower, so I'm still invested very much bearish, although I lost quite a bit from that when Trump announced the delay, but two days later and we're already close to being back where we started and I could kick myself why I even reacted, but you can't win in this game when it's so distorted, so I'm mostly staying out now and just leave my few remaining PUTs open, and I guess many do the same. The US economy is now fully dependent on the whims of a corrupt president, whose friends currently surely make a ton of money on insider knowledge, so there's zero trust in anything anymore.
  - candiddevmike 2y ago
    How can you be bullish after all of that? Tariffs are still on for China, and the administration has been caught manipulating the market. You're either in cash or holding the bag while they tank the market.
    - deng 2y ago
      Sorry, I meant bearish, I edited my article... :-)
  - UncleEntity 2y ago
    I heard a rumor that China has been dumping some of their dollar-denominated assets as a sort of "bad dog" reaction to the current state of affairs.
  - Fade_Dance 2y ago
    >It seems there's a liquidity problem in the markets, which is also weird because stocks are being sold, so there should be liquidity. This is a normal relationship. The financial system has leverage. When liquidity dries up and sellers dominate, volatility rises which feeds back into valuable risk metrics and realize portfolio volatility. That causes participants to downsize their exposure to keep the same risk. In these cases the participants don't necessarily have extra liquidity to deploy until after volatility and uncertainty settles. >For a while, even gold went down, which is also highly unusual during a market crisis. During a true crisis this is actually not that uncommon. In the trading space, you saw what you can during these events. In extreme circumstances where correlations all go to one even the safe havens get sold off to raise cash. The gold liquidation was a sign of pressured margin metrics and very high stress. You can see how quickly gold recovered after the peak stress, confirming that situation. >One reason that is frequently cited now and also in this article is because some hedge funds have specialized on the so called "basis trade", which I never heard of before. It basically means buying large amount of treasuries and speculating on their futures. The basis trade is more of an arbitrage than a speculation. The global eurodollar system (not currency, global offshore dollars) is about 20 trillion dollars in size. The basis trade is essentially a method in which regulated US financial markets are exported to The world at large to be used in the global, emergent financial system. Instead of buying a treasury directly, one can use the futures/eurodollar market, and the basis traders will arbitrage the difference and keep everything in line. >At some point, the FED would normally intervene and buy treasuries. The issue that the FED is facing isn't so much their balance sheet capacity but the tariff-driven inflation outlook and how it interacts with their mandate. That said, they did clearly communicate today that they would be willing to step in if there were severe signs of systemic instability. The reality is... if tariffs really do cause an inflation wave, yields at 5% may be relatively low...
- seanhunter 2y ago
  It will affect anything which comes due in 10 years. So say you want to take out a 20 years mortgage, the payments that are going to happen 10 years plus will have their rate influenced by the 10yr. OR say you’re trying sell a business. When they look at the future earnings of that business, a higher rate on the 10 year will mean they give you less for that business, because the money in 10 years time is worth less today. Also if you’re going to retire in 10+ years sucks to be you, your 401k just became a lot less valuable and the income you can expect in retirement will be lower. Now because nothing happens in a vacuum, the 10yr spiking will affect other yields too.
  - deleted 2y ago
    [deleted]
- suraci 2y ago
  it mean it's harder for the us gov selling bonds
lovich 2y ago
> You heard a lot about the LIBOR scandal Is that one I’m remembering where my variable interest rate student loan was over 9% while the only job I could get right out of the Great Recession after college was part time at Walmart and the banks fine was less than the profit they made off of manipulating the rate? They have so many of these scandals it’s a little hard to narrow it down

janis1234 2y ago

Can what you explain what the significance of the US 10 year yield going up is?

deng 2y ago
It means that they are not being bought. Normally, if the stock goes down, treasury yields go down because investors use them as safe havens for their money, so there's higher demand for them and hence the yield goes down. So why isn't this happening now? There's probably a bunch of reasons. It seems there's a liquidity problem in the markets, which is also weird because stocks are being sold, so there should be enough liquidity, but it seems people are rather holding on to their cash and not invest in anything. However, it seems still treasuries are being sold like crazy. For a while, even gold went down, which is also highly unusual during a market crisis. One reason that is frequently cited now and also in this article is because some hedge funds have specialized on the so called "basis trade", which I never heard of before. It basically means buying large amount of treasuries and speculating on their futures. In itself, this does not bring much money, but it seems this is done on a huge scale, and it's currently going very wrong. Now they are getting margin-called and need to sell assets. At some point, the FED would normally intervene and buy treasuries. However, the FED still has a ton of treasuries from the COVID crisis on its balance sheets and I think they will not intervene until the market has gone quite a bit lower, so I'm still invested very much bearish, although I lost quite a bit from that when Trump announced the delay, but two days later and we're already close to being back where we started and I could kick myself why I even reacted, but you can't win in this game when it's so distorted, so I'm mostly staying out now and just leave my few remaining PUTs open, and I guess many do the same. The US economy is now fully dependent on the whims of a corrupt president, whose friends currently surely make a ton of money on insider knowledge, so there's zero trust in anything anymore.
- candiddevmike 2y ago
  How can you be bullish after all of that? Tariffs are still on for China, and the administration has been caught manipulating the market. You're either in cash or holding the bag while they tank the market.
  - deng 2y ago
    Sorry, I meant bearish, I edited my article... :-)
- UncleEntity 2y ago
  I heard a rumor that China has been dumping some of their dollar-denominated assets as a sort of "bad dog" reaction to the current state of affairs.
- Fade_Dance 2y ago
  >It seems there's a liquidity problem in the markets, which is also weird because stocks are being sold, so there should be liquidity. This is a normal relationship. The financial system has leverage. When liquidity dries up and sellers dominate, volatility rises which feeds back into valuable risk metrics and realize portfolio volatility. That causes participants to downsize their exposure to keep the same risk. In these cases the participants don't necessarily have extra liquidity to deploy until after volatility and uncertainty settles. >For a while, even gold went down, which is also highly unusual during a market crisis. During a true crisis this is actually not that uncommon. In the trading space, you saw what you can during these events. In extreme circumstances where correlations all go to one even the safe havens get sold off to raise cash. The gold liquidation was a sign of pressured margin metrics and very high stress. You can see how quickly gold recovered after the peak stress, confirming that situation. >One reason that is frequently cited now and also in this article is because some hedge funds have specialized on the so called "basis trade", which I never heard of before. It basically means buying large amount of treasuries and speculating on their futures. The basis trade is more of an arbitrage than a speculation. The global eurodollar system (not currency, global offshore dollars) is about 20 trillion dollars in size. The basis trade is essentially a method in which regulated US financial markets are exported to The world at large to be used in the global, emergent financial system. Instead of buying a treasury directly, one can use the futures/eurodollar market, and the basis traders will arbitrage the difference and keep everything in line. >At some point, the FED would normally intervene and buy treasuries. The issue that the FED is facing isn't so much their balance sheet capacity but the tariff-driven inflation outlook and how it interacts with their mandate. That said, they did clearly communicate today that they would be willing to step in if there were severe signs of systemic instability. The reality is... if tariffs really do cause an inflation wave, yields at 5% may be relatively low...
seanhunter 2y ago
It will affect anything which comes due in 10 years. So say you want to take out a 20 years mortgage, the payments that are going to happen 10 years plus will have their rate influenced by the 10yr. OR say you’re trying sell a business. When they look at the future earnings of that business, a higher rate on the 10 year will mean they give you less for that business, because the money in 10 years time is worth less today. Also if you’re going to retire in 10+ years sucks to be you, your 401k just became a lot less valuable and the income you can expect in retirement will be lower. Now because nothing happens in a vacuum, the 10yr spiking will affect other yields too.
- deleted 2y ago
  [deleted]
suraci 2y ago
it mean it's harder for the us gov selling bonds

lovich 2y ago

> You heard a lot about the LIBOR scandal Is that one I’m remembering where my variable interest rate student loan was over 9% while the only job I could get right out of the Great Recession after college was part time at Walmart and the banks fine was less than the profit they made off of manipulating the rate? They have so many of these scandals it’s a little hard to narrow it down