{"id":2573,"date":"2011-09-03T11:52:49","date_gmt":"2011-09-03T15:52:49","guid":{"rendered":"http:\/\/streamingradioguide.com\/startingover\/?p=2573"},"modified":"2011-09-03T11:52:49","modified_gmt":"2011-09-03T15:52:49","slug":"the-big-picture-long-term-interest-rates","status":"publish","type":"post","link":"https:\/\/streamingradioguide.com\/startingover\/?p=2573","title":{"rendered":"The big picture – long term interest rates"},"content":{"rendered":"

Oil will go up and down, stocks will go up and down, gold will (probably) go up and down – but the plummet in the 30 year Treasury rates<\/span> is probably the most important thing going on the financial markets.<\/p>\n

Friday, the 30 year Treasury Bond dropped another 20\/100th of a percent <\/span>to end up paying 3.3<\/strong><\/span>%.\u00a0\u00a0\u00a0 The way bonds work is when interest rates go down, the price of the existing bonds goes up<\/em><\/strong>.\u00a0\u00a0\u00a0\u00a0 If you owned a bond with 29 years left with a rate of 4%,\u00a0 your bond is worth roughly\u00a0 20% more than a bond you could buy today\u00a0 (\u00a0 (4.0-3.3) * 29)\u00a0 [that’s an oversimplification on purpose]<\/p>\n

What this means is the flood of phony dollars created by the Federal Reserve QE1\/QE2 is not stimulating the economy<\/strong>.\u00a0\u00a0 Large businesses and institutional investors are getting fearful of having significant amounts of money sitting in accounts at banks – so they are parking their money in -any- US Treasury security they can get their hands on.<\/p>\n

The problem here is that buying long term bonds as a place to park money is an extremely risky thing to do<\/strong> – leverage works in both directions.\u00a0\u00a0\u00a0 If the interest rates suddenly reverse course (beyond the control of the Fed) and competing “safe” 30 years investments suddenly went to 5%, overnight your 30 year bond could lose half of its value. \u00a0 30 year T-Bonds are definitely not a safe place to “park” money<\/strong>. \u00a0 For investors outside the United States, they’re also buying currency risk – if the US Dollar craters, they will lose purchasing power in addition to losing the value in the Bond.<\/p>\n

Most of these people are not stupid<\/span>.\u00a0\u00a0 If there was something safe that was a better alternative, they would be in it.\u00a0\u00a0\u00a0 They aren’t buying the bonds for 3.3% interest rate for the next 30 years – they’re buying them in the hope that a coming global financial collapse will wind up with the US Treasury surviving.<\/p>\n

 <\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Oil will go up and down, stocks will go up and down, gold will (probably) go up and down – but the plummet in the 30 year Treasury rates is probably the most important thing going on the financial markets. … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-2573","post","type-post","status-publish","format-standard","hentry","category-american-politics"],"_links":{"self":[{"href":"https:\/\/streamingradioguide.com\/startingover\/index.php?rest_route=\/wp\/v2\/posts\/2573","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/streamingradioguide.com\/startingover\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/streamingradioguide.com\/startingover\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/streamingradioguide.com\/startingover\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/streamingradioguide.com\/startingover\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2573"}],"version-history":[{"count":2,"href":"https:\/\/streamingradioguide.com\/startingover\/index.php?rest_route=\/wp\/v2\/posts\/2573\/revisions"}],"predecessor-version":[{"id":2575,"href":"https:\/\/streamingradioguide.com\/startingover\/index.php?rest_route=\/wp\/v2\/posts\/2573\/revisions\/2575"}],"wp:attachment":[{"href":"https:\/\/streamingradioguide.com\/startingover\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2573"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/streamingradioguide.com\/startingover\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2573"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/streamingradioguide.com\/startingover\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2573"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}