While not fretting, we are certainly keeping a very close watch on interest rates.
This week, actually in the next few days, the Treasury will auction (fancy Wall Street talk for sell to hopeful buyers) $115 billion in new instruments. The need for this auction is obvious as we begin deploying capital for various new stimulus programs, and certainly extends our loans to others, a conversation for another time.
The important item to remember, which we have commented on many times, is the level of interest rates.
As a quick refresher, as bond values go down or lose principal value, interest rates rise. It is a strange relationship and often confusing, but just remember the value of bonds goes in the opposite direction of rates. Logically, if we are issuing $115 billion in new instruments there will be downward pressure on the value. Think if suddenly Heinz started producing large amounts of Ketchup, only a finite amount of people need Ketchup and eventually the prise will go down in order to sell all of those Ketchup containers, we might mention residential home prices as well. As the value of our Ketchup goes down, in our example, the yield or interest rate goes up.
Using our Ketchup example, if too many bottles are sold, pushing interest rates higher, the result may be a headwind for our economy. For greater detail see our Post “Interest Rates Friend or Foe” at
http://street-cents.com/2009/06/09/interest-rates-friend-or-foe/
Current Rates:
- 5 Year 2.59%
- 10 Year 3.73%
- 30 Year 4.62%
Thanks for your time, and as always, patience. JK
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Interest Rates On Tap as Treasury Auctions $115 Billion
While not fretting, we are certainly keeping a very close watch on interest rates.
This week, actually in the next few days, the Treasury will auction (fancy Wall Street talk for sell to hopeful buyers) $115 billion in new instruments. The need for this auction is obvious as we begin deploying capital for various new stimulus programs, and certainly extends our loans to others, a conversation for another time.
The important item to remember, which we have commented on many times, is the level of interest rates.
As a quick refresher, as bond values go down or lose principal value, interest rates rise. It is a strange relationship and often confusing, but just remember the value of bonds goes in the opposite direction of rates. Logically, if we are issuing $115 billion in new instruments there will be downward pressure on the value. Think if suddenly Heinz started producing large amounts of Ketchup, only a finite amount of people need Ketchup and eventually the prise will go down in order to sell all of those Ketchup containers, we might mention residential home prices as well. As the value of our Ketchup goes down, in our example, the yield or interest rate goes up.
Using our Ketchup example, if too many bottles are sold, pushing interest rates higher, the result may be a headwind for our economy. For greater detail see our Post “Interest Rates Friend or Foe” at
http://street-cents.com/2009/06/09/interest-rates-friend-or-foe/
Current Rates:
Thanks for your time, and as always, patience. JK
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