Global Economy Bursting?

[Randolph Kinney]

Jim Rogers Joins Bill Gross Warning on Treasuries

http://www.bloomberg.com/news/2013-...d-losses-pass-5-as-fed-price-gauge-rises.html

Investor Jim Rogers joined Bill Gross, who runs the world’s biggest bond fund, in warning that a rout that sent Treasuries to their biggest loss last month in almost a year probably isn’t over.

The list of bond bears is growing after Goldman Sachs Group Inc. and Wells Capital Management Inc. also voiced concern.

Ten-year rates will increase to 2.25 percent by year-end, according to a Bloomberg survey of financial companies.

The Fed said Jan. 30 it is committed to buying about $85 billion of government and mortgage securities a month as long as the jobless rate stays above 6.5 percent and inflation is below 2.5 percent.

 

[Couch Potato]

Historical average yield is 6.63%

Ten-year notes at 2.25%???? I can't believe they will ever reach such astronomical levels!

 

[Terrel L. Shields]

Ten-year notes at 2.25%????

Folks are beginning to understand that there is "risk" in bonds and the Bernanke "put" may be about to be tested. We shall see what we shall see.

 

[Workbox]

Ten-year notes at 2.25%????

Folks are beginning to understand that there is "risk" in bonds and the Bernanke "put" may be about to be tested. We shall see what we shall see.

Lately billions of dollars have gone to the stock market and is the reason why it is fueling the uptrend for the stock market. Now they want the trillions of dollars that are still out there in bonds.

The government has become a publicly held business that is also competing for the pubic's dollar.

 

[Randolph Kinney]

The problem with yield movement on any bond, it affects the current price you can sell it or buy it for. If you hold a 10 year US Treasury note to maturity, you get your money back.

The longer duration (maturity) of a bond, the larger swing in the current price is needed to adjust to a change in interest rates. To illustrate that point, look at the 30 year US Treasury bond.

Lets say you bought a 30 year US Treasury bond with a 2.5% coupon yield at par value (100 cents on the dollar face value) at the end of July 2012. Last week, the interest rate yield was 3.2% for a 30 year US Treasury bond. The bond price has to be adjusted to give a 3.2% yield to maturity.

Using the bond calculator at: http://www.free-online-calculator-use.com/bond-value-calculator.html

For every $1,000 of face value, you lost $135 or 13.5% of your investment (on paper) in less than a year. That loss would be real if you had sell.

Lets say you bought a 10 year US Treasury note with a 1.4% coupon yield at par value at the end of July 2012. Last week, the yield was near 2.0%.

For every $1,000 of face value, you lost $55 or 5.5% of your investment (on paper). That loss would be real if you had sell.

For a historic chart of 10 year and 30 year yields: http://www.treasury.gov/resource-ce...istoric-LongTerm-Rate-Data-Visualization.aspx

Look at the comparison of yield from February 1, 2011 through February 1, 2013. The FED has to use ever increasing amounts of QE to affect yields as the Treasury needs to borrow 42 cents of every dollar Congress and the President spends. The real quirk? As the interest rates rise on Treasury debt, more money is borrowed to pay the increasing amount of interest owed. At some point, the yields will run away and the value of the dollar will collapse.

 

[Randolph Kinney]

How To Sell Risky Paper: U.S. Treasury Sees Floating-Rate Note Sale Within Next Year

http://www.bloomberg.com/news/2013-...ns-72-billion-debt-sale-sees-frn-auction.html

The U.S. Treasury Department said it plans a floating-rate note auction within the next year and urged Congress to reach a long-term debt-limit solution.

The floating-rate notes would be the first added U.S. government debt security since the Treasury Inflation-Protected Securities, known as TIPS, were introduced in 1997. With a budget deficit of more than $1 trillion last year, the Treasury needs to expand its base of investors, and floaters may appeal to those who are seeking to protect themselves from a possible increase in interest rates or faster inflation stemming from the Federal Reserve’s unprecedented monetary stimulus.

The group also discussed “hypothetical” debt issuance strategies, including a 50-year bond and a 20-year bond.

“They explored different scenarios under which we could more aggressively extend the average maturity of the debt and it was in that context a 50-year bond was mentioned,” Rutherford said.

 

[Big ole Boy]

Floating rates stimulates new flows in a vortex dollar

I am trying to understand the above post.

What it seems to suggest is that the FED must go to a floating rate to increase demand so they don't have to buy as many back.

And by not having to buy as many back, the FED will create higher rates that will filter into other rates.

.................................

I am still a little fuzzy how this will help; but perhaps it just another way for the FED to create a new flow .... leading into a world currency.

This new floating mechanism will funnel larger and larger flows into a vortex currency for the global economy.

Now I am being silly ....

 

[Couch Potato]

Floating rates is a move of desperation that will be a signal for panic mode. It's like a homeowner buy more house than they can afford by using a low introductory rate on that adjustable rate mortgage. We all know how that ends.

 

[Riick]

I agree with CP.
In inflationary times you want a floating rate if you're the one renting out money.
....and a nice low fixed rate loan if you are the one paying the rent.
Since Treasury would be selling bonds, taking in $$ and paying out interest,
they *should* IMHO want a fixed rate....

 

[Restrain]

When the outstanding debt far outstrips the GDP, and debt service alone pushes 50% of the total budget, and is hitting 70% of actual revenues it becomes obvious to debt holders that the risk for default is increasing. Further, the probability of runaway inflation due to Treasury actions, coupled with other government action, will force bond rates up.