@Zhi
LOL, but it’s down from Q2 2020. That’s deflation, and that’s a big problem in a credit-based economy.
It doesn’t really matter if it’s up from 2019. In a credit system, debt has to keep going up—that’s inflation. When it goes down, we get deflation, which is not good.
@Ben
I don’t think you fully understand how ratios work.
Debt and GDP can go in different directions, and you can still get inflation or deflation. They’re nominal values, so it’s more complex than you’re making it seem.
@Peyton
Totally agree with that.
@Ben
But our debt is still over 100%.
Crossing 100% isn’t some magical line where everything falls apart.
@Ben
Interest rates were at record lows in 2020, so the government’s interest payments were manageable. Treasury decided to issue short-term treasuries instead of long ones. Now that debt has to be refinanced at much higher rates.
It sounds like you’re confusing debt with money supply. Debt can’t keep going up forever, or the country would go bankrupt. Money supply, on the other hand, is supposed to increase in a credit economy.
Fed funds rate and long-term treasuries are related, but they don’t match up exactly. Look at random points in history, like April 1993, or check out the 70s.
So who wants to lock in a 10-year bond at 3.6% with inflation and the government’s debt problems? That’s a bad yield considering the risks. We’re in “good” times, yet:
"The deficit hit despite record receipts of $4.9 trillion, which were far short of $6.75 trillion in spending.
As a percentage of GDP, the deficit is running above 6%, which is historically unusual during economic expansion. It’s also higher than the 3.7% average over the last 50 years, according to the Congressional Budget Office.
The CBO expects deficits to keep climbing, hitting $2.8 trillion by 2034. On the debt side, they expect it to rise from around 100% of GDP now to 122% by 2034." source
Also, keep in mind that the Fed has ~$7.2T on their balance sheet, and that helps keep long-term rates down by buying long-dated securities. Quantitative easing is meant to signal the Fed’s stance on looser monetary policy. [source](The Federal Reserve Balance Sheet Explained
Is this why so much money is flowing into TLT?
Maybe people are worried the Fed will lower rates too much, too quickly, and end up pushing inflation back up, keeping us stuck at around 5%.
I thought all interest rates just followed the trend set by the Fed.
How does the 10-year Treasury get priced between auctions? Does it rise when there are more sellers than buyers? If the yield is going up, that means bond prices are dropping, right? So people are selling their bonds for less than they bought them. What’s causing this cash to move around like this?
I heard an analyst on Bloomberg today say that the bond market is pricing in a Republican sweep in the elections and the expectation of a bigger deficit due to tax cuts.
Bidenflation is draining everything.
Microsoft was at an all-time high a few months ago. Now it’s not. Why?
Bonds don’t move in a straight line either. There are countless reasons why people stop buying bonds, and just as many reasons why they’ll start buying them again.
What matters is that bonds tend to trade within a certain range of the Fed Funds rate, and they do. Right now, they’re discounted by about 75bp.
So it’s reasonable to expect them to swing back to around 3.6%.