[HN Gopher] The collapse in Treasury bonds now ranks among worst...
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       The collapse in Treasury bonds now ranks among worst market crashes
       in history
        
       Author : strict9
       Score  : 28 points
       Date   : 2023-10-05 18:54 UTC (4 hours ago)
        
 (HTM) web link (markets.businessinsider.com)
 (TXT) w3m dump (markets.businessinsider.com)
        
       | jfengel wrote:
       | I always have a hard time keeping track of what goes up and what
       | goes down with bonds, so writing this down mostly for myself:
       | 
       | The Treasury sells bonds with a fixed amount. People bid on them.
       | The higher the bid, the lower the effective interest rate. (In
       | between Treasury sales, there's an open market of people selling
       | their bonds to each other, which hints at what the Treasury will
       | pay next time.)
       | 
       | So a price crash means that the bonds are cheaper, which means
       | that the Fed will get less money when they sell the bonds. It
       | means that interest rates are higher, costing the Federal
       | government more money for the same amount of debt.
       | 
       | The Federal Reserve has its own interest rate, which in turn sets
       | the rates that other banks will require for loans. They set that
       | high when inflation is high, which encourages selling Treasury
       | bonds in favor of other things. Inflation had been cooling but is
       | still above target, and for the last few months the cooling had
       | stopped.
       | 
       | It doesn't help that the US government has had to sell a lot of
       | its bonds lately, i.e. the debt is going up quickly. That too is
       | tied to things like inflation, as well as the war in Ukraine.
       | 
       | So... higher prices on stuff lead to a sell-off of bonds, raising
       | interest rates. OK, I think I understand all that.
        
         | pcdoodle wrote:
         | My question: Who isn't holding the bag in this climate?
        
           | great_psy wrote:
           | Rich people woo don't have any debt and can scoop things up
           | for cheap
        
           | injeolmi_love wrote:
           | Right now? Short term t bill holders. They rollover so fast
           | that interest rate hikes don't affect the principle, since
           | you just wait for them to expire then immediately grab the
           | new higher interest rate.
           | 
           | Tether (issues usdt) is winning big right now because they
           | mostly hold short term t bills.
        
         | adamredwoods wrote:
         | >> The Treasury sells bonds with a fixed amount. People bid on
         | them. The higher the bid, the lower the effective interest
         | rate.
         | 
         | I don't understand this part.
        
           | dragonwriter wrote:
           | > >> The Treasury sells bonds with a fixed amount. People bid
           | on them. The higher the bid, the lower the effective interest
           | rate.
           | 
           | > I don't understand this part.
           | 
           | With some simplified numbers: if the Treasury sells a bond
           | that matures in 1 year and costs $100, and it is purchased at
           | auction for $80, then it has an effective interest rate of
           | 25%, because for each $1 the Treasury got selling the loan,
           | it will pay $0.25 in interest in one year, as well as paying
           | back the principal.
        
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       (page generated 2023-10-05 23:02 UTC)