While the News(?) Media is focused on the stock market, the real news is going on in the bond market.\u00a0 Long-term Interest rates have been dropping like a rock – which means that people are bidding up the price of the existing bonds.<\/p>\n
The US 30 year Treasury has hovered around 4.2-4.3% for most of the time I’ve paid attention – in the last few days, the rate dropped to 3.8% – that’s a huge move\u00a0 – something like a 15% increase in the value of the bonds in a few days.<\/p>\n
This sort of flies in the face of intuition – now that the debt limit bill is passed, the US Treasury has a lot of borrowing to do – the Treasury has been using accounting gimmicks since April, so it has about $300 billion “extra” it needs to borrow\u00a0in the near future.<\/p>\n
There is a little volatility in the Forex rates, but nowhere enough to explain this plunge in interest rates.\u00a0\u00a0\u00a0 Things we know that are in play:<\/p>\n
\u00a0– People are getting nervous about Europe
\n\u00a0– Oil prices are plunging, suggesting a large economic slowdown
\n\u00a0– Switzerland lowered its rates – it doesn’t want the world’s money flowing into the Swiss Franc, making a speculative bubble
\n\u00a0– overnight LIBOR rates shot up in the last few days – banks are getting nervous about lending to each other again<\/p>\n
I don’t yet have a clear explanation, but this is approaching the September 2008 range.\u00a0\u00a0\u00a0 People holding interest rate swaps stand to lose or gain a lot of money from what is going on.<\/p>\n","protected":false},"excerpt":{"rendered":"
While the News(?) Media is focused on the stock market, the real news is going on in the bond market.\u00a0 Long-term Interest rates have been dropping like a rock – which means that people are bidding up the price of … Continue reading