Unraveling The Treasury Yield Tug Of War: What's Really Driving The Market?
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- Опубліковано 31 тра 2024
- Treasury yields have been volatile recently. What is pulling yields down and what pushes them higher
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Thank you for your informative videos. I've never had reason to learn about US treasuries until now. This channel helps me understand.
Look at your Treasury Auction Sizes slide… 10 year bonds are up only 10%. All other maturities are up double and triple that amount. The Treasury is purposefully not issuing many 10 year notes. If supply is constrained, prices will rise and yields will fall and viola! We have an inverted yield curve. That’s the reason for the inversion and it won’t uninvert until supply of 10-years is normalized. The treasury does this to constrain the 10 year yield because mortgages and car loans track this maturity. It also helps the stock market because growth stocks are often discounted to a present value using the rate of the 10-year. Further, the 10-year is often used to calculate the equity premium so a lower 10-year yield props up the stock market. Janet knows what she’s doing!
I concur. The Treasury started keeping the 10 yr, 20 yr and 30 yr auction sizes lower starting in November as a way to curb the rising 10 yr yield. I thought of this as another factor pulling yields down but have discussed this in other recent videos. I think Ms Yellen is incredibly intelligent, but if she was prescient she would have instructed the Treasury to sell more 10, 20 and 30 year Treasuries back when the yields were next to nothing and locked in those rates for the government. The Treasury Borrowing Advisory Committee should have been recommending that as well. Now the government is stuck with an average interest rate of 2.9% and with all of the increased T-Bill issuance the average interest rate the Treasury pays on the debt is going to go up when the refinace the debt.
Thanks so much for the discussion about the 10 year note and its relationship to the stock market!
The inverted yield curve will normalize by long-term rates rising, not by short-term rates falling.
If the bond market is working the way that it should be
Not if Fed starts QE again or a big war happens
I have T bills coming due every month this year. Have started to go longer. Bought some 20 year last month with 4.75% coupon (YTM of 4.9%). Thinking about the 10 year if it stays above 4.5%. Also grabbing some TIPS if rates are over 2%. Just got the 10 year at recent auction with a YTM of 2.184%. If inflation stays above 2.5% that will provide a yield of 4.7%, above the nominal bond.
I believe part of the expectation of lower rates is that the country can't afford higher for longer. Election, budget fights or next fed nomination could each be the moment when it comes to a head.
Something will give, we just don't know what ..
Because of your reporting, I have started buying --- but only the 30 Day Bill - have started a "ladder" because am going every week now that I am comfortable. My wife laughs because of the small amounts I am using/earning. THANK YOU
Excellent video---thanks!
I've been watching your podcasts some time now and I really appreciate the work you are doing. I'm not a US citizen / resident but I'm planning on buying US-T. I can do it on secondary market only. What is your opinion please about STRIPS? There's no much info on them on You Tube / financial forums. I've read recently that they are not popular. If so, why is that? Are they less liquid than regular coupon bonds? Are they not fully guaranteed by US government (their issuers are other institutions than Treasury Direct)?
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The only thing I use the CME tool for is to determine what the market thinks about interest rates, but as we've seen, the market can be very wrong.
The market never seems to listen to what the Fed is actually saying. Dot plot shows 3 rate cuts so the market says 'I think they mean 6 rate cuts!" It must be maddening to be a Fed person.
CME us rate cuts have been wrong since last year
I am doing short term treasuries and I will do again. Short term treasure is with they pay you in July and because I believe market is going to go down by the year end and I will start then I did buy Nvidia, but I sold out and I’m not buying it again till it really goes down.
you don't have to just trade in short term bonds...you can actually buy any bond that has not matured... so right this moment there are long term bonds that were issued years ago with maturities in the next few months... how about a coupon of 7.85% on a long term bond that is maturing in just a few months...also the treasury is issuing bonds now that won't mature till 30yrs... so you can buy/sell each month if you want... for the next 30yrs.... don't worry about the market going down by the year end....
do yet
Can you name such bond because I am not aware of it?
I thank you
@@Coco-yw9nf this one was issued in 1995 with a coupon of 7.625% and matures on 2/15/25.. CUSIP 912810ET1 .... another one... this one was issued in 1994 with a coupon of 7.5% and matures on 11/15/24... CUSIP 912810ES3.... there are many others... once the treasury auctions a bond then that bond is traded until it matures or the treasury buys the bond back and takes it off of the market.... if the treasury buys back a bond its simply because the dealers can't sell it due to lower yield than existing newer bonds... the dealers don't want to get stuck with a bond that does not trade.... anyway.... the bonds that the treasury is auctioning off today will be available for the next 30yrs.... don't worry about rates coming down, thats just for new issues and we know we can buy/sell the other issues and still get a good coupon rate... and there are corporate bonds with 9% to 10% that can be bought too....
You can buy NVDA at a low price June 10th after it splits 10 for 1...lol
@@Coco-yw9nf I posted two such bonds for you and youtube took the post away.....
Treasury buybacks are in minuscule amounts. In the neighborhood of 0.05% of overall treasuries in the marketplace. No effect.
I agree. As I said it wouldn't be pulling very hard. I mostly just wanted to fit in a discussion about the buy back program. Thanks for watching and commenting!
It's all very interesting details and info you provide, I wonder what your background in the bond/treasuries market might be if I could ask. I assume that you work in a field which gives you this insight.I also was wondering if you thought that all of the countries creating their own currency is or will effect our treasury market? Aside from more countries joining BRICS there are 10 SE Asian countries which have decided to band together for their own currency which total around 4 Trillion Dollars of a comparison to the US dollar!
I am a physician (radiologist) and retired Air Force Officer. I started investing when I was still a Major in the Air Force and knew nothing about what I was doing -- just putting money into the TSP and its 5 funds not knowing anything really about what those 5 funds were. Started listening to financial podcasts and getting more understanding. Started reading and listening to books about finance and investing. Subscribed to the WSJ and have just kept learning. I am pretty fascinated by how the government (and companies) finance their activities. I really like teaching so I share what I have learned. I wish I had someone to help me back when I knew nothing about what I was doing. Ideally I want to help people learn how to teach themselves so I share a lot of the resources that I have found.
Regarding other currencies. Where commodities are denominated in dollars, I don't see much threat (for instance oil). However the BRICS countries are working to trade between each other without using the dollar as a go between so I think that has the potentially to weaken the dollar (less demand for dollars abroad) and are BRICS countries are divesting from US Treasuries. That could contribute to weaker demand for T-Bills, Notes and Bonds and cause interest rates to rise.
I don't think they are quite ready to attempt a coup on the dollar as the reserve currency yet. I see that India is still denominating 85% of its exports in dollars, it's just easier.
@FatherNSonInvesting Thanks for taking the time to explain. It seems that you have had the Treasury and bond market as much of your focus on the channel. I expect that the yields being at fairly attractive percentages in the recent past would be the reason. For most investors, stocks and mutual funds have dominated our interests. Retirement as being the main purpose for most investors would be the reason. Many, including myself have kept bonds in mind as a secondary investment. As Retirement gets closer along with the higher yields I believe it has created more interest in them during the recent past, especially for us without a traditional pension to rely on! So it seems that even with a Government pension to look forward to you still have quite an interest in the bond market.
What I really like is a good deal on preferred stock (perpetual cumulative preferred). Sometimes one can find a distressed company that rebounds and one gets the gain in stock price plus the guaranteed dividend. I bought some Fat BP preferred stock awhile back that has done quite nicely. Not too many people want to watch a video about preferred stock though :)
272,000 jobs added in May announced this a.m., significantly higher than expected. Rate cut expectations in September slip from 69% to 53% ...so tug of war analogy continues! Higher for longer it seems.
not sure why you focus on "Yields" vs "Coupon Rates".... if your buying bonds for fixed income you don't care about the yields...its the coupons that make your fixed income.... investing in a bond for yield is a guessing game as you won't know what yield you get until you sell or the bond matures...