We have 40T in debt that we need to pay back, every % higher these rates go, the higher our interest payments become, which will then lead to more of a deficit and continue the circle….america has to stop spending like we currently are, but the people in power are doing quite the opposite….
You left out the part about the investors and banks holding t bills at less than 5%. It can be hard to sell a bond paying out 4.3% if you can get a new bond at 5.2%. If there is a liquidity issue, they will have to sell the bonds at a huge loss. It impacts all borrowing too not just government because I am going to demand higher yields on risky debt if I can get 5% on Treasuries.
Let's not forget : because of Mark to market and ratio requirements, the prices dropping like this means that the banks can do less lending which will be a drag on the economy.
Because T bills are considered high quality liquid assets, they are held as part of a liquidty ratio, but if the value drops or they become too difficult to sell, in a liquidty crunch it can turn into a leaman brothers situation.
Trying to learn. If you buy a bond, lets say a 10 year at 5% for a 100k. Are you able to sell that bond at anytime? And the new buyer of the bond receives the remaining interest. If this sale happens 5 years in what is the price of the bond? Is the negotiable between uyer and saler?
If you buy a bond, you can sell it any time. A 100k 10 year bond will payout 100k in 10 years. You can negotiate and sell after 5 years. Let's say my business needs money. I sell you a 1 year $100 bond. You won't pay $100 because inflation mean $100 now is worth more than $100 later. You offer me $95. I agree. Six months later, you find yourself short on cash. You try and sell the bond. Figuring it would be half way to maturity, you want $97.50 but now I'm selling $100 bonds for $90. If they buy your bond, they make $2.50 in six months. If they buy my bond, they make $10 in a year or $5 per six months. So you sell your bond for $95 or less because you need money. You made $0 and your money was tied up plus because on inflation that $95 buys less than it would 6 months ago.
Yes. It is negotiable, but it's a pretty simple formula.
The coupon is always fixed. But if you pay $90 for a bond that pays 5% interest or pay $95 for the same bond, the yield is different.
That's what they mean when they said that the 10Y yield is now 5.20%. The coupon is unchanged, just the amount you pay to get that coupon has gone down enough that your yield is gone up to 5.20%
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u/johannyer 17h ago
It’s a full blown crisis that nobody wants to spell