The price of the 10 year treasury bond gapped down today and closed at 132.23. This is after weeks of selling. What is causing prices to fall so abruptly? There are more sellers than buyers.
Why would anyone buy mass quantities of 10 year Treasuries when it is clear that another trillion dollar plus stimulus package is going to pass this month? Would you loan more money to someone that just borrowed RECORD amounts of money, and is about to borrow MORE record amounts of money? Of course not.
The main buyer of government debt is the Federal Reserve. They bought several trillion dollars of long dated treasuries which got the bond price up to around 140 brought yields to historic lows as little as 33 basis points.
They continued to buy over 100 billion dollars a month in long dated treasuries. However it is STILL NOT ENOUGH. Prices are crashing!!!
It took several trillion last year, and chances are it will take another several trillion this year to support bond prices. But, they will only do it after shit gets really bad. In other words, bond prices really have to crash into the shitter, which I think is around 128, and the yield on the 10 year really has to spike above 2%, and the markets really have to take a beating, probably at least a 15% selloff, before they will fire that cannon.
They may act sooner, but if they don’t be on watch for a really shitty stock market in March and laugh at the Biden Regime and the Dems as they flail around helplessly less than 3 months after stealing the White House.
The reflex of investors in times of crashing markets is to dump risky assets and buy safer assets. Equities are way riskier than 10 year government bonds. So that is the first part. Lots of investors dumped their equities and bought "safe" government bonds. You can also see the same dynamic if you look at short term treasuries like the 3 month bond price. When equity markets are at all time highs and everyone is happy, nobody gives a shit about 3 month treasuries so their price goes into the toilet and their yields are higher. Look at it in 2008 for instance. As soon as the market crashes the price pops and the yields go down.
Now after Feb 2020 the 10 year stayed at around 140 because the FED bought shit loads of treasuries to the effect of trillions in order to keep the prices up and the yields down.
The price of the 10 year treasury bond gapped down today and closed at 132.23. This is after weeks of selling. What is causing prices to fall so abruptly? There are more sellers than buyers.
Why would anyone buy mass quantities of 10 year Treasuries when it is clear that another trillion dollar plus stimulus package is going to pass this month? Would you loan more money to someone that just borrowed RECORD amounts of money, and is about to borrow MORE record amounts of money? Of course not.
The main buyer of government debt is the Federal Reserve. They bought several trillion dollars of long dated treasuries which got the bond price up to around 140 brought yields to historic lows as little as 33 basis points.
They continued to buy over 100 billion dollars a month in long dated treasuries. However it is STILL NOT ENOUGH. Prices are crashing!!!
It took several trillion last year, and chances are it will take another several trillion this year to support bond prices. But, they will only do it after shit gets really bad. In other words, bond prices really have to crash into the shitter, which I think is around 128, and the yield on the 10 year really has to spike above 2%, and the markets really have to take a beating, probably at least a 15% selloff, before they will fire that cannon.
They may act sooner, but if they don’t be on watch for a really shitty stock market in March and laugh at the Biden Regime and the Dems as they flail around helplessly less than 3 months after stealing the White House.
Out of curiosity, why did the prices spike in Feb 2020?
The reflex of investors in times of crashing markets is to dump risky assets and buy safer assets. Equities are way riskier than 10 year government bonds. So that is the first part. Lots of investors dumped their equities and bought "safe" government bonds. You can also see the same dynamic if you look at short term treasuries like the 3 month bond price. When equity markets are at all time highs and everyone is happy, nobody gives a shit about 3 month treasuries so their price goes into the toilet and their yields are higher. Look at it in 2008 for instance. As soon as the market crashes the price pops and the yields go down.
Now after Feb 2020 the 10 year stayed at around 140 because the FED bought shit loads of treasuries to the effect of trillions in order to keep the prices up and the yields down.
Ah ok. Makes sense. Thanks for your explanation!