jerryguru69 (93.18)

Treasury Yield’s Up = Boo, Hiss…Oh, wait

June 13, 2009 – Comments (3)

Please: if any of you Fools understand this macroeconomics horse hockey any better than I, please help. The ‘risk free rate of interest’ is an important number in any number of geeky financial equations. I know what various textbooks and CFA tutorials say. Problem: what the mass media reports bear no relation to what the academic texts say.

TREASURY YIELDS RISE, THREATEN HOMEOWNERS

I sort of understand this one. The interest rate of home mortgages are pegged to treasury paper, so the FED is trying mightily to keep interest rates down to reduce the cost of home mortgages.

TREASURY YIELDS FALL, SIGNALLING FINANCIAL STRESS

One measure of the various flavors of Treasury paper is the yield. The yield is a measure of supply and demand. During the recent financial meltdown, the price of Treasury paper increased, because investors were so paranoid of a financial Gotterdammerung, they bought Treasury Paper, even if the yield was negative.

TREASURY YIELDS RISE, SIGNALLY INFLATION

OK, this another one I sort of understand. With the many flavors of Treasury paper, you can calculate an anticipated rate of inflation.

TREASURY YIELDS RISE, HELPING PENSIONERS

OK, many retirement thingies are tied to the prevalent inflation rate thingie. During periods of deflation, pensioners do not get an increase in their monthly checks.

TREASURY YIELDS INCREASE, CONFIDENCE IN COMMERCIAL PAPER RISES

This is simple supply and demand. When people lose confidence in commercial paper, they naturally resort to Treasury paper.

TREASURY YIELDS RISE, SIGNALLY IMPROVING HEALTH OF COMMERCIAL PAPER

If you are hedge fund with cash burning a hole in the pockets of your jeans, you prefer to give your cold hard cash to corporation on the upswing rather than the Treasury.

SO: WHAT DO TREASURY YIELDS PROTEND?

Never the twain shall meet?