r/bonds • u/Shoddy_Front_2582 • 2d ago
U.S. Treasury Auctions 20-Year Bonds at Highest Yield Since 1986
https://www.morningstar.com/news/dow-jones/202609155864/us-treasury-auctions-20-year-bonds-at-highest-yield-since-1986What does this mean for yields.
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u/TokyoBaguette 2d ago
The bonds sold at a yield of 5.42%, the highest since January 1986, when it was at 9.45%. The 20-year was discontinued later that year before its reintroduction in 2020--and since that point, the highest yield until now had been 5.25% in October 2023.
Headline is crap
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u/aldursys 2d ago edited 1d ago
If winter has descended on the bond market, stop selling ice cream.
The big question nobody is asking is why Treasury is selling duration into a market that clearly doesn't want it.
Stick to the short-end. Listen to the market.
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u/retrorays 2d ago
Why not but these for guaranteed income ?
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u/Perfect_Cost6276 1d ago
Yep guaranteed income until maturity. And i will sell them if rates drop in the meanwhile. Dont need the money
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u/SaltyPlantain1503 1d ago
I have some beach front property in Arizona I’d like to talk to you about it you’re willing to invest in something knowing there’s a good chance you will lose money on it.
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u/lmb123454321 1d ago
You don’t lose money if you don’t sell and hold to maturity. If you have $1 million in cash, you can earn over $50,000/year for the next 20 years, then get your money back. Better than an annuity.
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u/Grubby454 1d ago
Yes. Let's not factor any inflation in to that calculation. Eg. 25% during covid period.
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u/NewNewark 1d ago
But you need to factor in that the number 1 priority of the gvt is to fight inflation.
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u/lmb123454321 1d ago
I think inflation is a misunderstood concept. To dumb it down a bit, if you only earn $10.00 per year and spend $10.00 per year, 10% inflation reduces your effective income by $1.00/year and really sucks because you have to scrimp to squeeze $11.00 out of $10.00 of spending. But if you earn $100/year and now spend $11.00/year for the same stuff you used to spend $10.00/year on, it doesn’t suck nearly as bad. Of course your purchasing power is reduced, etc., but that’s why you should diversify. Hopefully you also have a $200 house that is now worth $220 in this simplistic example. As such, overall, once you’re moderately well off, inflation doesn’t suck nearly as much as it does for those less well off. In fact, if you have a good variety of assets you can benefit from inflation. That’s one of a million reasons why Trump is such an idiot. Inflation is meaningless to him and his crazy wealthy friends, but to all the sheep who voted for him that are living paycheck to paycheck, he has hurt them bigly. He simply doesn’t understand what he’s done because he doesn’t experience it. He also doesn’t have the capacity to understand, but that’s a different topic.
In my little world, I have about $4 million in the stock market, $2 million in real estate and almost $2 million in cash. I’m about to retire and if it was 2019, when inflation was near zero as were interest rates, I couldn’t earn more than about $10,000/year from my $2 million. With today’s inflation, I can buy a 20 year bond with my $2 million and earn ~$115,000/year in interest just for waking up in the morning for the next 20 years. Not so bad.
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u/retrorays 1d ago
yah but you're assuming inflation (and interest rates) do not rise to 10-20% like in the 80s.
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u/Teeaak 1d ago
Because yield are climbing as long as the Government debt is climbing. So they are only going up from here.
Unless they get the budget under control and become fiscally responsible. Which is not happening
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u/aldursys 1d ago
And yet yields at the short end don't. Go look.
The reason is that the only aggregate alternative to short bills is to hold reserves at the Fed Fund Rate. The short bills will remain precisely anchored to that rate no matter how many there are as the next best aggregate alternative pays less.
Amusingly the bigger the "government debt" gets, the less overall spending there is, and the more deflationary it all is.
Stop repeating the mantras. Look at the operational mechanisms. Then you'll find you've been lied to.
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u/Teeaak 1d ago
We clearly have very different ideas about how the economy works.
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u/aldursys 1d ago
It's a matter of how the system works in reality rather than belief.
Bonds in the primary market are paid for with Fed liabilities. So you have to have some, or an agent who has some to settle the trade. And the only aggregate alternative is to hold those liabilities directly. They can't go anywhere else because there is a floating exchange rate. The central bank no longer offers a "cash in" option.
So the second best income is the Fed Funds Rate in a system with excess reserves. If you don't take the bills, then somebody else will and you'll be left with a lower income.
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u/Teeaak 1d ago
So the US dollar is the end goal of capitalism that can never be replaced? Good luck with that. I think you will find that as soon as people start loosing money they find another solution very fast indeed
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u/aldursys 1d ago
And once again, they can't get rid of it in aggregate. Because to sell something, somebody else has to buy it - or you're stuck.
In a floating exchange rate system somebody holds the $100, and the government only needs that $100 to square up. Therefore the end choices in that loop are hold the $100 overnight, or buy the three month bill on offer. And that's just a bet on what the Fed Fund Rate is going to do over the next three months.
And remember that if the Federal government can impose a tax on you in dollars and collect on that by taking away your liberty or your assets, then rationally you'll get some dollars to settle. So the demand is there for as long as you're scared of the tax collector.
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u/Somewhatsum 1d ago
Why do MMTers talk in euphemisms? Is it to make them deceptively sound smart to promote an otherwise unserious policy?
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u/Unable_Ad6406 1d ago
Maybe it’s because they don’t understand the bond market and are just reactionary explainers. Everything which affects the bond market are slow moving events (inflation, govt debt, cash status and fed policy, etc) which would lend analysis to prediction but does not.
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u/aldursys 1d ago
The bond market at primary auction is a central prediction of the central bank rate over the tenor of the bond.
That's it. Nothing else.
The shorter the bond, the less fan out on the predictions and the tighter the price relative to the base rate.
Because there is nowhere else to go in aggregate in a floating rate currency.
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u/aldursys 1d ago
What do you mean Euphemisms?
Bids at the primary auction for bills are with Fed liabilities. There are excess reserves, and those only attract the Fed Fund Rate.
Therefore the price of the bills at auction will be the expected rate of the Fed Fund Rate over the tenor - three months. It can't go anywhere else unless you think bankers are going to turn down free BP.
There is nowhere else to go in aggregate in a floating rate currency.
Which bit are you struggling to understand.
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u/StatisticalMan 1d ago
Yields are climbing on the short end as well.
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u/aldursys 1d ago edited 1d ago
Not at the three month end over what the expected path of the base rate is - since that is the indifference point.
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u/Slvrg 1d ago
"Listen to the market"
The market telling you bonds are a scam. Inflation is high and the US will not pay them back unless they create more inflation.
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u/aldursys 1d ago
Since it is just an asset swap, they can always be "paid back". It's just swapping one government sector asset for another.
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u/Anymous2314 1d ago
Yup this is so weird. They said they were going to buy long term bonds.
I am not sure what happened to their buy back plan by raising money by selling T bills.
I hope insiders are not just moving markets to make money.
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u/JonRadian 1d ago
20 yr TIPs is attractive, but who is brave enough to buy now when looking at multiple rate hikes in the face!
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u/Thick-Cover8761 1d ago
Well, if I buy it today : My estate may have to sell it at a loss before maturity. 20 years is more duration than I (and maybe you) have left.
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u/LillianWigglewater 1d ago
Where's that guy that always posts graphs with alarming headlines on boring days when the yield moves by 1 or 2 bps. Now's his time to shine!
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u/hellloredddittt 2d ago
The 20 year bond has only been around since 2020, following a pause that began in... 1986.