Personal Finance and Investing

Last edited Thu Sep 30, 2021, 11:20 AM - Edit history (1)

The bellweather "Risk Free Security" worldwide is the 10 year US Treasury Note, so that's why I brought it up. The reason it is considered to be so reliable (As it was explained to me by an economist who worked on the "Bond Desk" for AG Edwards, the same brokerage I did) is because it is a bond of substantial duration, that reliably pays periodic interest payments and so far, has NEVER failed to be redeemed at par, in full on the date of maturity. The secondary market for these securities is very deep and well regulated, and unlike most stocks and bonds of other types that settle "Trade plus 3", US Treasury Bonds settle "Same Day". As a result, Treasuries are a VERY liquid security and the purchase or sale of almost any amount of any series is typically accomplished by any bond trading desk at any bank or brokerage on the planet, in seconds. It also means these bonds (and the rest of the Treasury portfolio, for that matter) are in high demand as an interest bearing place to put money that is VERY safe.

Any government or central bank can issue sovereign bonds, but the Ten Year is denominated in US Dollars (as are all US Treasury securities, for that matter), which also happens to be the worldwide reserve currency. It must be purchased with dollars, the interest payments are made in dollars and it is redeemed when mature in US Dollars, REGARDLESS of who is the holder. The US Treasury does not send the Chinese Central Bank (Or whoever holds all their US Treasury Bonds) interest checks or wire transfers in Yuan. It's paid in dollars. It's up to the Chinese (or whoever) to convert those funds back to their own currency on the open market.

My best answer to your primary question is this;

What to watch is the Yield on the note and look for a spike. The price or cost of a bond rises or falls inverse to the yield. Yield up, the price falls, and vice versa. If there are more sellers than there are buyers, as with any open market, the price of the bonds fall and their yield rises. But the spike in yield is going to accompany some very bad news, so little, day to day jumps up or down are normal. There are various web sources for the daily trading results of these bonds, but Yahoo or Bloomberg are as good as any.

No, it's one point five seven -> 1.57 %


You're looking for the yield to spike suddenly on SIGNIFICANT bad/stupid news (likely containing the words "Mitch McConnell" ) and then steadily but dramatically rising over the next few trading sessions. If they raise the debt limit (which I frankly think they will absolutely do, even if it is at the 11th hour) then things will plow along just as they are.


Not sure what you were reading that says 15.17 (fifteen point one seven) (Edit here for further clarification; The 15.17 figure is an Index quote from the "CBOE". It's an index as opposed to a direct quote of bid/ask prices on the latest trade. It does reflect yield, however, Just move the decimal point one spot to the left! My apologies for not being clearer on this point.) but the yield quote would be 1.57%. Is it bad? Well, that depends on who you are. If you are the holder, then it is really very low by historical standards and you are getting peanuts for interest. If you are the US Treasury, and by extension, a US Citizen, then it is good because it means we can borrow money for ten years for...again...peanuts. No, it isn't inherently bad, not by any stretch, but it is exceedingly low from a historical perspective. The 11.54% is how much it went up over the last 5 trading sessions. The yield rose eleven and one half percent in 5 days time, from around 1.36% last Monday to the 1.57% you are seeing in the quote. Not much really, and when this number is looked at over a larger time span, it is a tiny blip on a large screen.

Look at this quote page from Yahoo
At the top right of the little chart is a link for "Fullscreen" Click that and when the large chart opens, hit "Max" at the top, to the right of "Date Range". This will give you a better perspective of where the trend is, and it has been downward for quite some time. Click the Plus or Minus symbols (+ or - ) at the bottom of the chart to increase or decrease the number of years the chart will show. I mentioned in my post above a one percentage point rise would be alarming. That means the yield would go from 1.57% to 2.57% in one day, in an environment where we are barely seeing movements of two tenths of a percent on a daily basis. It would be alarming, but it wouldn't mean a panic, just yet. Five or more straight days of that? Yeah, that would be serious, but you would be well aware of why it was happening by day 2.

Allow me to give a quick explanation about yield;

Yield is a function of price vs redemption value and/or the value of a coupon rate. There is an "and/or" there because the US Treasury sells bonds that do not make interest payments. You can see those here. Note that under the column "Coupon" the 3, 6 and 12 month paper has "0.00" in that column. These are called understandably enough, "Zero Coupon Bonds". They do not pay interest payments on an annual basis. That's because these instruments have very short maturities and the money you make (the Yield) is the difference between what you pay for it and what it matures at, called "Par". The Par value of almost every bond issued in the United States, be it US, State, Municipal or corporate, is $1,000.00 Notice the coupon next to the remaining securities, with the 10 yr being 1.25.

These 10 Yrs we are looking at, according to the Bloomberg page, have that Coupon rate of 1.25%. That means for every $1000 face value bond you hold, the Treasury is going to send you $12.50 a year, divided into 2 payments, 6 months apart. If the bond is currently selling on the secondary market for a grand, the yield is the same as the coupon. But if the bid price is HIGHER than a thousand dollars (called a "Premium" ) , the yield will be lower because you are still getting the interest payments, but when it matures, you will get back less than you paid for it. If you buy the bond BELOW par (a "discount" ), the opposite is true, and therefore the yield is higher.

ALL BONDS MATURE AT PAR - Unless another provision comes in to play, like a specific "Call Provision"

US Treasuries are RARELY called in early.

Again, there will be some VERY BAD NEWS that will precipitate any selloff, but bond traders worldwide are likely to know about it and be reacting to it long before the regular media is able to even put it out. And I'm not talking about any kind of insider trading or anything, it's just that information from the financial wire services traders worldwide are glued to is not something MSNBC or CNN is generally leading every news block with.

I hope that helps a bit. I'm sure I missed something and I'll probably make 20 edits (!) fixing a word here and there, but after having been at this for a couple hours now, I think I should just shut up!