So, I have been wondering. A lot. With the rate on 10 yr T's down to 1.6%, how can that be anything other than a sucker's bet?
I mean, do you seriously believe that there will be inflation rates of <=1% for the next ten years?
And that the US is going to find a way to solve the rate of increase of the deficit? I don't mean the debt, I just mean the deficit. No plan out there to solve the debt. We see Spain facing rates of 7%+. If US rates go back up to just 3% or 3.5%, anyone holding 1.6% T's is going to get hammered.
However, here is an answer. At least it gives a rational explanation.
I mean, do you seriously believe that there will be inflation rates of <=1% for the next ten years?
And that the US is going to find a way to solve the rate of increase of the deficit? I don't mean the debt, I just mean the deficit. No plan out there to solve the debt. We see Spain facing rates of 7%+. If US rates go back up to just 3% or 3.5%, anyone holding 1.6% T's is going to get hammered.
However, here is an answer. At least it gives a rational explanation.
4 comments:
Gary Shilling recently noted on Bloomberg that the reason to buy Treasuries is for price appreciation, not yield (http://bit.ly/OAhOuW).
Separately, Gary Becker commented on his blog that "long term interest rates tend to be an average of current and expected short term rates" (http://bit.ly/MHi1Nx). If the Fed Funds rate is still effectively zero percent in 5 years than current 10-year Treasuries will almost certainly have appreciated in value over that period.
I thought it said BLONDE in the headline!!!
LOL!
The Blonde
Exactly. It's the closest thing to greenbacks -- liquid, etc. -- that still has positive yield. Well, out to 10 years anyway. Shorter maturities are zero or negative.
Well yes, the Cleveland Fed reports that, yes, its latest estimate of 10-year expected inflation is 1.19 percent.
That does appear to be what the market is saying.
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