
U.S. 10-Year Treasury Yield Closes at All-Time Low - applecore
http://www.wsj.com/articles/government-bond-yields-in-u-s-europe-hit-historic-lows-1467731411
======
jeffwass
In case people are wondering about "yield" : in a nutshell yields and prices
are inversely related, so treasuries are priced at all-time highs. [+]

Yield is effectively the return one would get by buying a bond at market price
and holding it to maturity, with a guaranteed payment of interest coupons as
well as principal at maturity. It tells you something about both the interest
rate (very low now) and credit quality of the issuer (very low risk of non-
payment for the US Treasury).

Since bonds can have different maturities and interest coupons, yield is one
way to compare returns. Government bonds and very-high-quality corporates are
typically the lowest risk. Conversely "High Yield" bonds (aka junk bonds) are
high risk, offering higher returns to the investor as an incentive for taking
on a riskier investment (eg, company may not be able to pay back the
principal).

What this news means : people are willing to buy treasuries at very high
prices, expecting very little in return for holding them. Typically this
characterises a "flight to quality", meaning investors are more worried about
assets losing value than earning returns. Ie, they're willing to give up
potential returns of "risky" assets like stocks and corporate bonds that may
lose value in a stressed market, and instead hold treasuries that earn very
little.

[+] I'm hesitant to say prices are at all-time highs because actual prices
would have been higher back when treasuries paid a higher interest coupon. But
using yield to compare, we can say some sort of "pseudo treasury price" is at
an all-time high.

~~~
ChuckMcM
It is a good summary. I'd disagree slightly on your "what it means" paragraph.
I'd phrase it a bit more actively.

It means people _are_ buying treasury notes instead of using that capital
somewhere else. And that means they are afraid that investing it any other way
will likely result in it being lost (fear driven). That can indicate a couple
of things, one that there is so much money out there that these people don't
care what return it generates, as long as its available 10 years from now. Or
it can indicates how little people think of the current entrepreneur ecosystem
such that there is nothing they are willing to bet on that would earn them
more than the few dollars per year they would get from treasury bills.

Either way that represents a remarkable amount of capital "sitting on the
sidelines" with nothing better to do. So what that implies for this audience,
is that if you can figure out a way to generate even a slightly better return
than treasury notes, and you can do it with modest risk. You will have access
to all the capital you need and more. But it is also important to realize that
this capital is no longer believing that a startup with an "exit" of any type
has that sort of appeal. You need to come up with a startup that pays
dividends or something on preferred shares. Basically if you figure out how to
pay 3% annual dividends on your preferred shares, combined with a way to
exchange shares in a slightly more liquid way than heavy weight funding
rounds, you will be able to raise millions.

------
elgabogringo
"The United States has become an economy dominated by finance and governed by
the Federal Reserve, which determines what money is worth and who gets it. The
Fed has reduced interest rates to near zero. When anything is free, it is
distributed by queue and only the privileged people in the front of the line
get any. Some 62 percent of Fed money just flows back to the Treasury and two-
thirds of the rest goes to S&P 500 companies that use it mostly to buy up
their own shares. This is the first economic recovery on record in which small
businesses have actually been shedding jobs."

[http://www.sfgate.com/news/article/The-unicorn-economy-
and-t...](http://www.sfgate.com/news/article/The-unicorn-economy-and-the-
disturbing-plight-of-7960412.php)

------
carsongross
Yields are plunging because the crisis of 2008 was never solved and the
bandaids that were supposed to tide us over to the recovery are wearing off.
Economists don't take debt (private debt, in particular) seriously, so they
don't know why we aren't recovering like their models say we should be.

Steve Keen just put up a fantastic talk on this:

[https://www.youtube.com/watch?v=iY5rto-
ivoA](https://www.youtube.com/watch?v=iY5rto-ivoA)

Until we get the private debt issue resolved (Keen's suggestion is a modern
debt jubilee) we can expect to follow japan into the abyss.

~~~
jldugger
Household private debt, to the extent that it is a problem, appears to be a
diminishing factor:
[https://fred.stlouisfed.org/series/TDSP](https://fred.stlouisfed.org/series/TDSP)
&
[https://fred.stlouisfed.org/series/HDTGPDUSQ163N](https://fred.stlouisfed.org/series/HDTGPDUSQ163N)

It seems far more likely that yields are plunging because 1) Brexit is
threatening to tank itself, the EU and their trading partners 2) US treasuries
are unlikely to be affected by this ("flight to quality") 3) institutional
investors are willing to lock in a 10 year rate now by buying treasuries
because rates are unlikely to go higher until #1 is resolved, and might even
go lower instead

~~~
carsongross
You are cherry-picking your graph durations. Private debt to GDP is still
tremendously high by historical measures:

[http://www.debtdeflation.com/blogs/wp-
content/uploads/2012/0...](http://www.debtdeflation.com/blogs/wp-
content/uploads/2012/01/010212_2140_TheDebtwatc1.png)

Really, read (or at least watch) Keen. He's the only economist whose models
make any sense of the Japanese experience and he's correctly predicted
economic crises using only private debt to GDP ratios quite successfully.

The most interesting thing about his models are that they predict a moderation
before the crisis, which is exactly what we've seen. It's revolutionary work.

But I do agree that the Brexit (and the upcoming earnings shoah) are the
proximate causes of this rate dip. The private debt issue is the underlying
problem keeping them so low in the first place.

~~~
jldugger
I chose literally the longest period FRED had available. Never heard of Keen
until you brought him up, but I'm not really prepared to study one random
heterodox economist to the exclusion of others. Especially one that seems
unable to publish in peer reviewed journals.

~~~
carsongross
I'm sorry: I shouldn't have said you were cherry picking in that case. You
were misinformed by the limitations of the datasource you were looking at.

Given the performance of academic economics over the last fifty years and the
scandals in peer-reviewed academic journals, studying hetrodox economists is
well worth your while if you are interested in truth rather than tenure. But I
can save you the trouble, having looked into many of them: Keen is the one to
read.

[https://www.amazon.com/Debunking-Economics-Revised-
Expanded-...](https://www.amazon.com/Debunking-Economics-Revised-Expanded-
Dethroned/dp/1848139926)

He's genius-tier, maybe our era's Keynes.

------
afarrell
Wouldn't this mean that reducing the deficit would be a bad idea? Shouldn't we
increase the deficit and spend money on things like filling the Strategic
Petroleum Reserve? Especially if we are planning to start selling from it in
2018... [http://www.bloomberg.com/news/articles/2015-10-27/u-s-
plans-...](http://www.bloomberg.com/news/articles/2015-10-27/u-s-plans-to-
sell-down-strategic-oil-reserve-to-raise-cash)

~~~
jbooth
Yes, that and infrastructure to create jobs, demand, and fix a bunch of things
that need fixing. But, unfortunately, most national politicians are against it
because politics.

------
chakalakasp
I love the WSJ, but it's paywall and I don't subscribe. Here is a Reuters link
(though probably less in depth).
[http://www.reuters.com/article/idUSL8N19R18Z](http://www.reuters.com/article/idUSL8N19R18Z)

