Bond Market Watch



gerhard dengler

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Feb 3, 2011
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I know Jack about these things. Should we be happy or worried?
Every other asset class is priced relative to the bond market. The bond market is the foundation for the entire economic system. Bonds guarantee a fixed rate of return and are the supposedly the safest form of investment. Every other investment is priced off the bond market.

A bond is a promise by a country to repay what you loan to that country. The yield is the interest that the country pay you on that bond when they sell the bond to you.

If there is high demand for a bond, the yield rate is lower (meaning that the person/company/country selling their bond pay lower yield - interest - to the person lending them money).

If there is weak demand for a bond, the yield rate is higher (it is higher in order to attract bond buyers who want to be paid higher interest, should they buy the bond).

By it's 10 year treasury (bond) yield rate going up, America has to pay investors in their bonds a higher interest rate, which means having to set aside more taxation in order to pay higher yields (interest)

America is in debt to the tune $21 trillion. Higher yields means more taxation needs to be ringfenced to pay the interest (yield) on outstanding American bonds.
 

Conor

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America is in debt to the tune $21 trillion. Higher yields means more taxation needs to be ringfenced to pay the interest (yield) on outstanding American bonds.
Not on outstanding bonds, only on new issuance.
 

gerhard dengler

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It would appear that US 10 year treasury note yield is now fixed within 2.9%-3.1% range.

The question is will the yield go beyond 3.1%, and what will be the effect of the increase?

One effect from higher bond yields would be that the interest paid on national debt would become higher. Therefore more taxation has to be ringfenced to pay the higher cost of interest.

Ringfencing taxes would mean that taxation used previously to pay for public services are instead used to repay interest on borrowings.

The other possibility is that the state would have to increase existing rates of taxation to pay higher interest costs, or the state would have to introduce new taxes to pay higher interest costs.
 

gerhard dengler

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US 10yr Treasury bond yield closed at 2.84%.

Compared to May 2018 yield high, today's close is 28bps lower than the May high yield.
 

GDPR

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U.S. bond market recession gauge nearer to red signal: Reuters poll

(Reuters) - An inversion in U.S. Treasury yields, a solid and reliable predictor of past recessions, is at most two years away and perhaps only a year off, according to bond market experts polled by Reuters who have brought their forecasts nearer.

While there is still plenty of optimism around the global economy, there are signs that growth in several economies has already peaked, putting a brake on stock markets and sending rising bond yields back in the other direction.

https://www.reuters.com/article/us-markets-bonds-poll/us-bond-market-recession-gauge-nearer-to-red-signal-reuters-poll-idUSKBN1JP016?utm_source=Eloqua&utm_medium=email&utm_campaign=00016LX_NewsletterMorningBenchmarkEU_Other&utm_content=TMB_EU_29June2018
 

Trainwreck

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U.S. bond market recession gauge nearer to red signal: Reuters poll

(Reuters) - An inversion in U.S. Treasury yields, a solid and reliable predictor of past recessions, is at most two years away and perhaps only a year off, according to bond market experts polled by Reuters who have brought their forecasts nearer.

While there is still plenty of optimism around the global economy, there are signs that growth in several economies has already peaked, putting a brake on stock markets and sending rising bond yields back in the other direction.

https://www.reuters.com/article/us-markets-bonds-poll/us-bond-market-recession-gauge-nearer-to-red-signal-reuters-poll-idUSKBN1JP016?utm_source=Eloqua&utm_medium=email&utm_campaign=00016LX_NewsletterMorningBenchmarkEU_Other&utm_content=TMB_EU_29June2018
But typically accompanied by rising high yield spreads - which isn't happening.

https://fred.stlouisfed.org/series/BAMLH0A0HYM2#0
 


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