
1 Mo. Treasury Jumps from 10 to 27 bps in 7 days - JumpCrisscross
http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
======
JumpCrisscross
This is a confusing situation. When I call D.C. they say an impasse blowing
through 17 October is likely. When I call my rates and bond dealers on Wall
Street I'm told that it shouldn't be too unsettling. The truth is likely in
the middle.

Past 17 October the U.S. Treasury can prioritise payments, i.e. make interest
and perhaps Social Security payments while blocking others. This makes the
U.S. plunging back into a recession probable. It also virtually assures
Federal Reserve (The Fed) intervention.

Some time before 1 November all bets are off. There are big payments due that
will force the Treasury to be creative (e.g. minting a $1 trillion coin,
issuing original-issue-premium debt, or blatantly ignoring the debt limit) or
default. The Fed could open swap lines with the banks in an attempt to de-
couple the U.S. financial system from its political system. The odds of
success are low.

An unknown number of pieces, with uncertain capabilities on a shifting board,
collectively daring or being dared to test new limits. This is an interesting
situation.

~~~
bcoates
The $1 Trillion coin thing was never a serious plan.

Ex-Treasury official: "As a straightforward matter the Federal Reserve
wouldn’t give Treasury a trillion dollars for that coin."

That said, he's keeping with the party line that the US "always pays it's
bills on time", so take it with a grain of salt (the US defaulted twice or
more in the 20th century, depending on how you count)

[http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/03/w...](http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/03/why-
we-wont-mint-the-coin-why-we-cant-just-pay-off-bonds-and-other-scary-debt-
ceiling-facts/)

~~~
lkrubner
No national government of an English speaking nation has defaulted on its debt
since the “Great Stop of the Exchequer” of Charles II Stuart in 1672:

"Here in the Anglo-Saxon world—never mind how few of us in it have any
substantial proportion of our ancestors coming ashore with Hengest, Horsa,
Esc, Ella, Cymen, Wlenking, and Cissa to loot, pillage, rape, and burn—we have
not seen any government default since the “stop of the exchequer” of Charles
II Stuart, when he simply got sick of paying his bills and decided to balance
his budget by defaulting on his debt and then accepting bribes from Louis XIV
of France, who was desperately anxious that Britain not help the Dutch resist
his invasion."

[http://delong.typepad.com/files/20120221-the-budget-and-
macr...](http://delong.typepad.com/files/20120221-the-budget-and-macro-
policy.pdf)

~~~
bcoates
I'm not sure if he's using an esoteric definition of "national government",
"English speaking", or "default", but if you consider the "Failing to make a
payment on a US government issued bond as agreed" then he's wrong. The US
failed to pay out on inflation-adujsted WWI War bonds (paying them in nominal
dollars rather than gold contrary to the bond terms, a substantial haircut)
and during a previous unprecedented debt ceiling crisis in 1979 the US tried
to dance too close to the edge and wasn't able to pay all the bonds due on
time.

[http://en.wikipedia.org/wiki/Liberty_bond#Default_of_the_Fou...](http://en.wikipedia.org/wiki/Liberty_bond#Default_of_the_Fourth_Liberty_Bond)
[http://www.npr.org/2011/07/11/137773341/looking-at-when-
the-...](http://www.npr.org/2011/07/11/137773341/looking-at-when-the-u-s-last-
defaulted-on-treasury-bonds)

------
hacknat
To the people speculating the the US will default, and that the Treasury won't
prioritize payments, I think you are, understandably, misdirected by the idea
that Wall Street cares whether this is resolved legally or not. The market
gives only the slightest of shits whether this is resolved legally.

The administration will make sure that we won't default if Congress can't act,
and will most likely be dragged into court for doing so, where it will be
determined that they acted illegally, but only on some technicality that
nobody cares about and allows people to keep their money. Wall Street wants
money, it doesn't care if your system has inner logic to get it.

~~~
a3n
I'm guessing the Republicans are saying "Oh please, oh please," at the
prospect of impeaching Obama for spending and borrowing without authorization.
And they don't even have to win, they just need a forum that will be covered
on the nightly/daily news to call Obama names and gum up his administration
until the next election.

I'm guessing the administration is saying "Oh please, oh please" at the
prospect of default that they'll justifiably lay on the Republicans, and use
to make the Reps look bad and gum up their lives until the next election.

I'm guessing we're fucked.

~~~
pnathan
That's my opinion as well. The Republican hardliners are echoing what I've
heard many "normal citizens" say for quite a few years. I am sure they are
ringing up the votes every time they declare no compromise.

The Democrats, on the other hand, get to point at the Republicans and say,
"They are screwing you!", and have that more or less be true. I am sure they
are ringing up the votes every time they declare that the Republicans are
screwing the popularion.

Yeah, I'm not seeing how the parties have serious incentive to actually do
their job.

~~~
mgkimsal
they don't, and we should get rid of parties, or get a multitude more in
power.

~~~
pnathan
> we should get rid of parties,

The US tried that in the 1790s, as I remember. Didn't wind up working out in
practice. I gather the current electoral system (winner take all) trends
towards a two-party system. At least, that's what the poly-sci folk say.

------
zcarter
This is notable because the change in perceived risk (as measured by the
yield) of default appears greater in the shorter term government debt (1mo) as
compared to the debt maturing later (3mo). It would indicate that "the market"
believes there may be some technical non payment scenario over the short term
(so, government shutdown related), but there appears to be no fear-mongery
shaking of the faith in the nation. As you can see in the link the 30yr bond's
yield has in fact fallen over the same period.

As this is a technical crowd, and there are requests for layman explanations,
I'll elaborate some: Yield = Interest rate. This is inverse to the price of
the bond. If you hold a bond and the yield rises (say, from 10bps to 27bps),
you have lost money on your holding since the market price fell. The
unexpected yield increase (price fall) on short term treasuries is notable
because short term government bonds are held in large quantity by very risk
averse investors (e.g. money market accounts) that not expecting to take
losses. The unlikely downside scenario of a one off non-payment or deferred
payment may cause settlement problems in short-term bond markets, or even a
"freeze" as happened after Lehman collapsed.

Typically the yield of a bond increases over longer maturities because there
is more time for something to potentially go wrong leading to an inability to
pay. Thankfully, the United States is a sovereign nation that prints its money
on keyboards, so that is only possible if a decision not to pay is made.

~~~
javert
> Yield = Interest rate. This is inverse to the price of the bond.

Why is that?

Isn't the interest rate of a bond a constant that is set by the seller of the
bond? So if the bond becomes more risky, the interest rate doesn't change, but
the market value of the bond goes down.

Put differently, the Treasury could offer a bond with a higher interest rate,
but for the same "amount," in order to raise more money.

I don't know anything about bonds or the Treasury, and I am just trying to
reason it out, so please let me know if I have a mistaken premise.

~~~
grinnbearit
Bonds are a contract saying, "I'll pay you a fixed amount of money after a
fixed amount of time". They then try to sell that contract on the open market.

Depending on how risky the market perceives the contract to be, the price
could be a lot lower (increasing the effective interest rate)

------
dimitar
Edit/Clarification: this is a negligible spike.

Can you spot the movement in 10y series?
[http://research.stlouisfed.org/fred2/series/DGS1MO](http://research.stlouisfed.org/fred2/series/DGS1MO)

The risk premium isn't nearly the main determinant for such government
securities unless you have an actual default. Lets hope we don't get to see
that mayhem.

EDIT: Some FRED Data Not Updated Due to US Government Shutdown

OK, so you'll not see, for a different reason...

~~~
Steko
So that graph is only updated through 10/7 and the jump to .27 happens on
10/8.

------
kanamekun
Feels like we're about to have a Seldon Crisis:

[http://en.wikipedia.org/wiki/Seldon_Crisis](http://en.wikipedia.org/wiki/Seldon_Crisis)

~~~
dllthomas
What do you see as the external pressure?

~~~
kanamekun
If I had to pick one, it would be the global recession set off by the United
State's last financial crisis... and the risk that another crisis could cause
the collapse of the nascent global recovery.

[http://www.nytimes.com/2013/10/08/us/politics/default-
threat...](http://www.nytimes.com/2013/10/08/us/politics/default-threat-makes-
impasse-in-washington-a-global-fear.html)

------
jamestomasino
The headline would have been much more impressive if they just looked one day
earlier. It went from 0.03 (9/30/13) to 0.27 (10/8/13). Being that the 0.03
number was much more the norm before the shutdown October 1st, it paints a
better picture. What that picture means... I haven't a clue.

~~~
hacknat
That a default will technically happen, but will happen in such a way that the
market won't care all that much in the long term.

------
brianbreslin
Can someone explain this to me in lay men's terms?

~~~
lmgftp
BPS - Basis Point(S) (1/100th of a percentage point per Basis Point)

This is the interest on the bond, and the Fed sells these Treasurys to the
public in order to raise money on an interim basis.

Effectively, it reflects the cost of borrowing money by the Federal Government
of the United States to borrow money for ONE MONTH. This is a very short time
period, as Treasurys are for sale in 1-mo to 30-year periods. So you'd only
charge a high interest rate if you think the likelyhood of non-payment is
actually an issue (that's risk vs. return).

Typically, 1 month is very not-risky, as it's highly likely that the US Gov is
still around and solvent in a month. But with the recent debt ceiling /
government shutdown rhetoric the market is beginning to get a little worried,
so the premium the government must pay in order to borrow money has increased.

Basically by the Congress/White-House being deadlocked and having such fiery
rhetoric it begins to appears as if there is a chance of default, and that
chance is slightly higher than normal, so the risk/return on the 1 mo treasury
has increased, as reflected in the increased interest rate the government has
to pay to its bond holders.

~~~
ibelimb
Does this mean it would be a good idea to invest in a one month bond if you
can wait out the chance the government would be delayed in paying you back?

~~~
nerfhammer
the absolute interest rate is still very miniscule

~~~
pmarca
Yes but what hedge funds would do (are undoubtedly doing) is raise a huge
amount of money on margin and use it to arbitrage the spread between these and
related instruments with other durations. Of course this can go horribly
wrong; read the book "When Genius Failed".

~~~
ballard
Oh god, LTCM. Beware of investors that have no demonstrable controls against
automated/HFT pouring of more of my money into a black hole trying to "win"
back their losses.

The Trillion Dollar Bet is also a good, high-level documentary.

------
coldcode
But what happens to the bank's asset value if TBills are suddenly no longer
liquid (or at least desired)? Wouldn't that trigger some kind of valuation
crisis, since banks are required to maintain a certain level of asset value?

~~~
marklabedz
Perhaps even more important than strict valuation is that banks (and
especially institutional investors) have strict rules on the type of
investments they can make. One of the most important issues is the level of
risk carried. T-bills have historically been considered a (or the) risk-free
asset. Suddenly they are not which potentially leads to a lot of selling
(lowering prices) or attempted selling (if markets freeze).

------
swamp40
The Treasury Secretary is charged with paying the interest on the US debt.

It doesn't need the approval of President Obama, nor can he explicitly prevent
it.

------
preempalver
ahem : [http://blogs.reuters.com/felix-salmon/2013/10/08/the-un-
terr...](http://blogs.reuters.com/felix-salmon/2013/10/08/the-un-terrifying-
treasury-bill-market/?dlvrit=60132)

------
fixxer
Never have I seen so much speculation over 14 bps.

Wake me when it gets back over 1%... I might buy some.

