Skip to comments.Treasury yields soar
Posted on 06/10/2009 11:22:41 AM PDT by mathprof
Government debt prices tumble as new debt is prepped for auction and Russia says it will sell some of its holdings.
Treasury yields soared to seven-month highs Wednesday as the government prepared to sell $19 billion in 10-year notes and Russia said it would reduce its share of U.S. debt.
The benchmark 10-year note fell 17/32 to 93-16/32, and its yield surged to 3.93% from 3.86% late Tuesday. The yield was at its highest levels since settling Nov. 3 at 3.96%.
Bond prices and yields move in opposite directions.
The 2-year note dipped 1/32 to 99-4/32, and its yield rose to 1.33%. The yield on the 3-month note held steady at 0.18%.
The 30-year bond sank 1-5/32 to 92-11/32, and its yield jumped to 4.73% from 4.65%.
Earlier in the session, the yield on the longbond reached as high as 4.73%. The last time the 30-year bond settled this high was nearly a year ago on June 19, 2008, when the yield ended the session at 4.76%.
Debt sale: The government continued to sell large amounts of debt to fund the stimulus aimed at boosting the economy.
(Excerpt) Read more at money.cnn.com ...
Very high interest rates, very high inflation...
Increase in interest rates for starters.
1978 redux on steroids.
mortgage rates 17+%?
I expect real inflation to average, with peaks and troughs, 10-15% per year over the next 10 years. What a “peak” could look like, and what might happen if public confidence completely collapses, is anybody’s guess. Can the Govt maintain the facade and keep general “confidence?”
General productivity gains in the economy may help somewhat reduce the impact of inflation, but otherwise, only through constant and high inflation can the Govt reduce its massive debt and reduce the burden of the massive unfunded liabilities of Soc. Sec. etc... that are looming. Remember, inflation is a tax - so your taxes will be rising regardless!
“soar”...that’s good, right? /s
I assume by your tag you can do the math, professor. Are you as worried as I am?
You bet I am. At least I have a fixed-rate mortgage. Also, I remember quite well the late 70s...
I'm coining the term in advance, "hyper-stagflation".
Also, read about the Weimar Republic to see what out-of-control spending can buy you:
Those with fixed, Low interest loans will be in the winners circle ...
It won't touch the unfunded liabilities because those will be increased with cost of living adjustments and increased payments to doctors to keep them accepting Medicare. Just think of grandma and grandpa compaining that their billion dollar SS check not covering their bills with gasoline over five million dollars a gallon and you can't go out to dinner for less than ten million each.
As President Carter appeared on prime-time television last week to proclaim and explain the long-awaited Stage II of his campaign to slow the inflation that has reached an annual rate of 10%, his manner and delivery befitted the solemnity of his subject. Seated at his Oval Office desk and reading from a prompter, the President vowed to try "to arouse our nation to join me" in the long-range fight.
One problem in Carter's effort to dramatize his program was that much of it had already leaked out. There had been divisions within his Administration over how tough a stand to take, and when to take it. And as a decision was being reached, final work was repeatedly delayed, first by the Egyptian-Israeli talks at Camp David, then by the frenetic end of the congressional session.
Other leaks had sprung from the Administration's commendable efforts to brief key leaders in Congress, business and labor, as well as reporters, on what the program would require. The advance disclosures placed a large burden on Carter's capacity for rhetoric.
As one aide put it: "How the President sounds will be as important as anything we put into this program." The President is hardly a natural orator, but he made a good try. Through the typewriter of Chief Speechwriter James Fallows, Carter's text had undergone seven drafts.
Checking a tendency toward overstatement, Carter deliberately adopted a cautious, realistic, even humble, attitude toward his struggle with inflation.
"I do not have all the answers," he admitted. "Nobody does." He conceded frankly: "We have tried to control it, but we have not been successful."
His new policy, he said, "is almost certain not to succeed if success means quick or dramatic changes. A long-term disease requires long-term treatment." But he pleaded: "It is up to us to make the improvements we can, even at the risk of partial failure, rather than to ensure failure by not trying at all." Considering the complexity of both the problem and his plans to solve it, Carter's explanation was quite clear. He contended, perhaps a bit simplistically, that he faced only three alternatives:
1) to impose mandatory wage and price controls, which business and some union leaders abhor;
2) to induce a recession, which might reduce inflation but only at the cost of high unemployment and lower business profits; and
3) to set voluntary wage and price guidelines, with the Government using whatever levers of persuasion and economic pressure it can to see that they are observed.
Jimmie Carter November 1978, read and weep.....
We are in the early stages of "Carter on steroids" presently.
As the interest rates on the bonds go up, the Fed will get less money up front. Therefore, they will have to borrow more—and print money to pay it back. Rinse, and Repeat.
That will drive up the prime rate on mortgages and other “prime” customers. Those with lower credit ratings will not be able to get loans without usary level interest rates.
That will cause consumers and companies to put off making capital purchases. You will drive your car into the ground because it will be more expensive to buy one.
Savings will dwindle, because you will tend to buy your staples NOW rather than wait until next week, because the price will go up. 12% inflation means that your core baskets of goods will rise about 1% per month. So, consider your $200 shopping bill this month will be $212 next month. Gonna buy that 5 pound bag of sugar now, or wait?
Because savings have dwindled the banks have less to loan. This means production will drop, and you will have even more dollars chasing after fewer products.
Wages will rise, but not enough. Remeber the days of 12-15% raises every year?
Thats just the start, and its just the consumer side. The corporate world and state-economics will be worse.
And THAT’s why this is important.
Do you think if Obama would accuse foreign investors, such as China, of being greedy that they would take kindly to it? Like accepting lower interest rates so that 'the one' could continue out of control borrow/spend?
No! I didn't think so.
“What, specifically, will happen when our debt isn’t purchased by anyone?”
It will be purchased, it’s just that it will be expensive.
Unfortunately, the Treasury will be purchasing it more and more
That’s what I’m wondering about. I just recently refinanced my mortgage at 4.5% for 30 years. I was wondering what would happen to the financial industry if all of a sudden interest rates jumped to 10-15-20% per year...You would have a major crisis and uprising if the government allowed inflation indexing of mortgages like many other countries do (3rd world countries...that is). Growing up in Brazil during my childhood, I remember inflation rate exceeding savings rates....People purchased goods as soon as they received their paycheck...People threw their money at real estate, even cars for investments.
where should i dump my liquid savings to keep up once inflation hits? (i need it liquid seeing i don’t qualify for unemployment)
but what exactly will happen? ————Bwaney will have Fannie buy it-—with an IOU...??? LOL
I had been looking at buying a smaller house, but the offer we made in Feb fell through. We have looked at building a house on a lot, but I was expecting in April to have until August to get a low interest rate. I hadn’t expected rates to go up this much in just 6 weeks.
We haven’t quite yet settled on a floor plan, so it may go up enough to put us out of the market...at the rate it is going, 7% or more by late July?
IIR, the Treasury took steps in April to drive rates down - namely, they printed an extra 1,000 Billion dollars.
They were boasting about their success - but now rates are up almost a percentage point in 6 weeks?
How are those house sales and refinancings doing now...
Chinese purchasers of the notes are citizens of the world whose good deeds are countless and before whom we poor, miserable, unreformed former capitalists should prostrate ourselves in trembling gratitude that they have graciously consented to finance the One's remaking of society.
let me know if you get an answer, I need to know too.
let me know if you get an answer, I need to know too.
Over half have fallen through.
Yealds didn’t sour, bring on the 18-20% interest rates that we enjoyed under Carter!!!
“The bidders at these Treasury auctions are nothing more than greedy speculators who put their private interest above the public good.”
Shove your public good where the sun doesn’t shine.
Are you defending people who are so selfish as to work hard, lead a life of thrift, educate their children and try to save for their own retirement?
no answers... but this is a pretty good, concise explanation of the problem:
scary graph too.
“With an increased trust in the overall banking system, the panic demand for money has begun to and should continue to recede. The dramatic drop in output and employment in the U.S. economy will also reduce the demand for money. Reduced demand for money combined with rapid growth in money is a surefire recipe for inflation and higher interest rates. The higher interest rates themselves will also further reduce the demand for money, thereby exacerbating inflationary pressures. It’s a catch-22.
“It’s difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed’s actions because, frankly, we haven’t ever seen anything like this in the U.S. To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn’t a pretty picture.”
If they can screw the bondholders with impunity, do you really think that "unfair" fixed mortgage is safe. Ya'll be havin thirld world acorns demonstratin in front o yo 3 car garage.
Does this mean that interest rates on CD’s will also go up? Thanks.
everything points to gold...
my hesitation is that i don’t want to be the one who bought gold at ‘81 prices and has to hold it for 30 years. but i guess all signs are pointing to mid 70s, not early 80s, even though gold is breaking $1000/oz.
When I downsized houses, I pulled out $200 grand @ 5% for 30 yr. I plan to pay it back with Baraqqi minibucks.
That's one of my concerns too ...
thanks, great info
I’ve always been a fan of Art Laffer
If the shoe was on the other foot - and Chinese business was suffering because they got caught putting lead on kid's toys or poison in dog food - would you want to "kick in a little extra" at Walmart so those Chinese firms wouldn't suffer? And if you didn't would you be "greedy"?
Lock in a rate now - some locks are good for 90 days. If you can lock in a 7% and rates go up to 11% you’ll feel like one lucky person.
“...12% inflation means that your core baskets of goods will rise about 1% per month. So, consider your $200 shopping bill this month will be $212 next month.”
How about $200 bill will be $202 next month, with 1% inflation per month.
Sorry to nit pick.
And THAT my friends is why I am a photographer and not an economist.
Yes, they should. But again, they probably won’t beat inflation. Remember, the banks need to get their 25 basis points....
Sorry. I was just practicing for what to say when the block committe interviews everybody who owns a gun or Bible before deciding which re-education camp to send us all to.
You had the right idea - just a little fuzzy on the math...