Tilted
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Depends on what we're comparing it to. Or so says the world.
Get out the doomsday machine. Borrowed money is about to start getting more and more expensive on top of a crippled economy.
... and higher oil prices - not that you care.
Early inflation indicators?
- Thread starter Tilted
- Start date
... and higher oil prices - not that you care.
Tilted
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But, it's going to get a lot more expensive - at least, the carrying costs on our debt are.
Only a small portion (10 percent-ish) of our publicly held debt issuance is in 30 year bonds - so a lot of it isn't locked in at low rates for long periods.
Tilted
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This yield has fallen quite significantly over the last month - currently it's 4.37%. Further, it's now only 82 basis points higher than the yield on the 30 year German Bund.
I guess the 'well, at least they ain't Greece' effect is in full force.
Larry Gude
Strung Out
I am stunned anyone is willing to tie up a dime that long these days.
Tilted
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At those rates, me too.
The money isn't necessarily tied up for that long - you can always sell the securities. But, if rates go up such that the yield is now bad, then you'd be selling the securities at a lower price and losing money. You're either accepting those rates for that long or accepting a corresponding lose to have access to the money sooner (if rates go up).
I can't imagine being long on these bonds from a trading perspective right now. Though, I suppose the world could end and you could make some money off it as it was happening - for whatever that'd be worth.
Larry Gude
Strung Out
How do you sell them??? I thought a 30 year at 3% was 30 years at 3%? I mean, if I want out, chances are real good you don't want in, yes? Or, what do I have wrong?
As to your last point, I think people in the know know that deflation is coming. It has to. Bush put it off, Obama is putting it off, by propping up housing but, it ain't, can't work. So, they are looking at todays 3% as being tomorrow's 7%. So to speak.
I think.
Tilted
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How do you sell them??? I thought a 30 year at 3% was 30 years at 3%? I mean, if I want out, chances are real good you don't want in, yes? Or, what do I have wrong?
As to your last point, I think people in the know know that deflation is coming. It has to. Bush put it off, Obama is putting it off, by propping up housing but, it ain't, can't work. So, they are looking at todays 3% as being tomorrow's 7%. So to speak.
I think.
Pretty much the same way you sell any financial instrument, stock, bond, etc. The trading price on a particular issue goes up and down just like a stock's trading price, and from that price a yield can be calculated (as, when it comes to loan instruments, the yield is what is most readily apprehended by most people's mind). New 30 year Treasury Bond issuances come every three months (i.e. they are originally auctioned by the Treasury(*)) - the trading yield that gets reported (and which I sometimes refer to) is the effective rate that the latest generation of 30 year Bonds yields when purchased at the price it's currently trading at.
The Treasury actually has a pretty good system - called Treasury Direct - which makes it easier for retail investors to buy, sell, and hold Treasury securities directly. You can also buy, sell, and hold them through banks and brokers. Next to cash, U.S. Treasuries may be the most liquid financial instrument in the world - that's one of the reasons why they're such a prominent wealth preservation investment option and why they're widely used as an economic indicator.
To be clear, changes in the trading yield don't directly affect what the U.S. government is paying in interest on a particular issuance of securities - that rate was set, in so far as the government is concerned, when the securities were originally sold. However, the rate determined by auction on new issuances closely reflects the current trading yield of existing securities with the same maturity. There's not much reason to accept significantly less interest to have a new shiny Bond if you can buy one that's a month older and paying a lot more interest.
(*) This isn't strictly accurate, but for the purposes of this discussion it's accurate enough.
Larry Gude
Strung Out
My question wasn't accurate enough.
If I buy one today, 30 years, 3%, and I want out in 10 years, it's gonna be a bond yileding 3% that matues in 20 years, yes?
Point being, if I want out because 3% really, really sucks due to economic changes, it's hard to see why you would want to buy it.
So, 'how do you sell it?' was supposed to mean, 'why would anyone want to buy it?' if you could buy a current one at better than 3.
Tilted
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My question wasn't accurate enough. Or my reading comprehension was out of tune.
If I buy one today, 30 years, 3%, and I want out in 10 years, it's gonna be a bond yileding 3% that matues in 20 years, yes?
Point being, if I want out because 3% really, really sucks due to economic changes, it's hard to see why you would want to buy it.
So, 'how do you sell it?' was supposed to mean, 'why would anyone want to buy it?' if you could buy a current one at better than 3.
Gotcha. The short answer is: someone would buy it because the price they would be buying it at (the trading price) would mean that they would be getting more than a 3% yield. They would not be paying face value for it (just like you likely did not). They would be paying a price that reflects current yields.
You would be selling the security for less money than you paid for it. Instead of being stuck with a lower yield on the principal you loaned, you'd take a hit on that principal and be able to do something different with what remains of it.
I'll try to post a more thorough, more mechanistic, answer later -though I doubt that's what you're looking for.
Larry Gude
Strung Out
No, no. Less thorough, less mechanistic works for me.
You gave me the gist on both ends. Still, if I was willing to get out that badly then, I presume a buyer would have to have awful strong reason to get in instead of chasing somewhere else like I would be doing. Larger point being that effectively tying up that much money that long for that little is not a very good sign, especially when they'd rather not risk getting .75 more from us!
Aerogal
USMC 1983-1995
I was going through some old paper work last month and found a $50.00 bond that I received as a permium (for something I signed up for). Anyway the issue date was 2000, so I looked up the rates and figured I'd be 72 before it would pay me the full face value of $50.00 so I took it to my bank to cash it. I got ~$30.00 for it (can't remember the exact amount). Oh and I have to keep the paper they provided so I can be taxed on the dividend. Nice.
Tilted
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The 30 year Treasury Bond is flirting with the 3.60% level again this morning, while the German 30 year Bund is at 2.82% (wow). The bond markets are trying to tell us something - is anyone listening?
Add to that, based on pre-market activity, the DJIA may test 10,000 this morning. Oil is also down, below $72. Even gold is down (though only marginally). We aren't just seeing a move toward safety, we're seeing a move toward uber safety.
I hope the existing home sales data isn't too bad this morning, things could get ugly.
Add to that, based on pre-market activity, the DJIA may test 10,000 this morning. Oil is also down, below $72. Even gold is down (though only marginally). We aren't just seeing a move toward safety, we're seeing a move toward uber safety.
I hope the existing home sales data isn't too bad this morning, things could get ugly.
Tilted
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Yikes. The numbers were expected to be horrible. As it turns out, the expectations were too optimistic.
Tilted
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And then there's this. Loan me $100 for 2 years and I'll give you back $101.
Auction for Two-Year Notes Sees Lowest Yield Ever
Auction for Two-Year Notes Sees Lowest Yield Ever
Larry Gude
Strung Out
I'll take it.
Tilted
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You'll loan me the money or you'll take the loan? If the former, can we make it $50,000 (payoff to be $50,500)? If the latter, well, we've reached an impasse in these negotiations.