Among the jewels: Treasury Department paid 88 cents on the dollar to buy back 10-year Treasury notes sold at auction Aug. 2020 at a record-low yield of 0.677%.
By Wolf Richter for WOLF STREET.
The Treasury Department’s buybacks of Treasury securities — it kicked off that program in April — show on an anecdotal basis what is going on in the market, including the bloodletting among longer-dated Treasury securities due to rising yields since mid-2020.
So far in October, there have been four buyback auctions – one per week. The Treasury department announces beforehand what securities by CUSIP Number it offers to buy back. The Primary Dealers submit their bids at what prices they’re willing to sell. Those bids are evaluated, some are accepted, others are not.
In total over those four auctions in October, the Treasury bought back $7.0 billion at par value (face value) in securities. But that’s not the amount it paid. It bought back many issues at a substantial discount to par value. As we can see, the buyback amounts are relatively small in the huge universe of the Treasury debt outstanding.
| Treasury Buybacks in October, amounts at par value | ||||
| Auction Date | Issues eligible | Maturity date range |
Offered million $ |
Accepted million $ |
| 2-Oct | 26 | Oct 2025 – Jan 2032 | 1,384 | 235 |
| 10-Oct | 26 | Oct 2029 – Sep 2031 | 4,963 | 2,469 |
| 16-Oct | 49 | Oct 2027 – Sep 2029 | 10,257 | 4,000 |
| 23-Oct | 18 | Jul 2032 – Feb 2054 | 977 | 323 |
| Totals | 17,581 | 7,027 | ||
We’re going to look at a few specific bond issues that the Treasury department bought back at each of the past four auctions.
On October 23: bought back TIPS:
Holders of TIPS (Treasury Inflation Protected Securities) get paid interest every six months at a fixed rate. In addition, the inflation protection amount, based on CPI, is added to the principal of the TIPS. So with inflation, the par value of the security grows, and the percentages here are off par value that includes the inflation protection amount added to the principal. Here are four of the issues it bought back.
At 62.04% of par value, bought back $10 million of 30-year TIPS, issued in August 2020 at a negative yield of -0.272%, the first time in history that TIPS sold at auction at a negative yield🍾🥂. Crazy times, back in mid-2020, as the Fed had just gotten done with $3 trillion in QE over a three-month period. The TIPS mature in February 2050, CUSIP Number 912810SM1.
The Fed, back when it still did QE, waded deeply into the relatively small TIPS market, mostly in the secondary market through its Primary Dealers. At this TIPS auction in August 2020, the New York Fed’s SOMA desk bought $608 million of these 30-year TIPS, or about 9% of the total issued.
At 58.78% of par value, bought back $40 million of 30-year TIPS, issued in August 2021 at a negative yield of -0.292%, maturing in February 2051, CUSIP Number 912810SV1.
The Fed bought $1 billion of these 30-year TIPS, or about 11% of the total issued.
At 91.47% of par value, bought back $15 million of 10-year TIPS, issued in September 2022 at a yield of 1.248%, maturing in July 2032, CUSIP Number 91282CEZ0. In September 2022, the Fed had already started QT and didn’t buy any TIPS at that auction.
At 96.0% of par value, bought back $40 million of 10-year TIPS, issued in July 2023 at a yield of 1.49%, maturing in July 2033, CUSIP Number 91282CHP9. At this auction in July 2023, the Fed was deep into QT and bought none.
On October 16: bought back 7-year & 10-year notes, including:
At 90.48% of par value, bought back $175 million of 7-year notes, issued in October 2020, at a yield of 0.60%, maturing in October 2027, CUSIP Number 91282CAU5. These 7-year notes have 3 years left to run and so they currently trade like 3-year notes.
At this auction in October 2020, when QE was in full swing, the Fed bought $5.6 billion, or 9.6% of the total.
At 96.55% of par value, bought back $176 million of 10-year notes, issued in February 2018 at a yield of 2.81%, maturing in February 2028, CUSIP Number 9128283W8. At the auction in 2018, the Fed bought $4.5 billion or 19% of the total.
At 90.3% of par value, bought back $139 million of 7-year notes, issued in December 2020 at a yield of 0.66%, maturing in December 2027, CUSIP Number 91282CBB6. At the auction in 2020, the Fed bought $9.0 billion of them, or about 13% of the total.
At 90.25% of par value, bought back $129 million of 7-year notes, issued in August 2021 at a yield of 1.16%, maturing in August 2028, CUSIP Number 91282CCV1. At the auction in August 2021, the Fed bought $7.8 billion of them, or 11.2% of the total.
On October 10: bought back 7-year & 10-year notes, including:
At 100.25% of par value, bought back $17 million of 7-year notes, issued in October 2022 at a yield of 4.03%, maturing in October 2029, CUSIP Number 91282CFT3.
These notes have a coupon interest rate of 4.0%, and with 5 years left to run, they trade like a 5-year yield which is currently 4.03%. At the auction in October 2022, the Fed didn’t buy any of them.
At 88.29% of par value, bought back $377 million of 10-year notes, issued in April 2020 at a yield of 0.78%, maturing in February 2030, CUSIP Number 912828Z94.
It seems hard to imagine today that someone would actually buy a 10-year note with a yield of 0.78%, but the March-to-May 2020 period was when the Fed was buying about $3 trillion in securities in the secondary market through its primary dealers in order to drive down yields and digest the $3 trillion in new Treasuries that the government was issuing over the same period.
The bulk of QE – to increase its holdings – was done in the secondary market. So at this auction in April 2020, the Fed only bought $82 billion of the 7-year notes.
At 82.71% of par value, $390 million of 10-year notes, issued in August 2020 at a yield of 0.677%, which was the lowest yield ever for a 10-year note sold at auction🍾🥂. They mature in August 2030, CUSIP Number 91282CAE1.
At the auction in August 2020, the Fed bought $22.6 billion of these misbegotten 10-year notes, or 37% of the total – and these duds are lodged on it balance sheet to this day. The Fed will hold them to maturity, collect 0.625% in coupon interest a year, and get face value back at maturity.
On October 2: bought back TIPS, including:
At 97.08% of par value, $22 million of 10-year TIPS, issued in January 2018 at a yield of 0.548%, maturing in January 2028, CUSIP Number 9128283R9.
At the auction in January 2018, the Fed bought $1.9 billion of these TIPS, or about 12.8% of the total.
At 99.28% of par value, $10 million of 5-year TIPS issued in June 2023 at a yield of 1.83%, maturing in April 2028, CUSIP Number 91282CGW5. At that auction in June 2023, the Fed bought none.
Some buyback technicalities.
Buybacks are not new. The Treasury Department was buying back older Treasury securities in 2000 through 2002, and on a minuscule scale once or twice a year from 2014 onward, with amounts such as $25 million a year, just to test the plumbing.
Treasury cites some reasons for the buybacks, such as to help manage its cash after tax season when it’s drowning in cash; and creating liquidity in an end of the market that lacks it. The effect – and the real reason for them – would be slightly lower yields in that end of the market.
Buybacks are supposed to ease a liquidity problem. The problem in the Treasury market is that older “off-the-run” Treasury securities are hard to sell because there is little trading in them, and sellers have to accept a (small-ish) haircut when they do find a buyer. The US Treasury market is the most liquid bond market in the world, but it’s not that liquid for older Treasury securities. So Treasury stepped in as buyer of “off-the-run” securities. Recently issued “on-the-run” securities, however, are easy to sell without haircut.
Buybacks are not QE. QE involved money creation – buying bonds with newly created money. That’s what the Fed did until 2022. Treasury cannot create money. It can only get money from collecting taxes and from borrowing – huge amounts of borrowing – which means that the Treasury Department issues new securities that add to the debt; the cash proceeds get spent on budget items and servicing the existing debt, and a small portion of those cash proceeds is now used to buy back off-the-run Treasury securities. Treasury cancels the securities it bought back and they cease to exist. In other words, with these buybacks, Treasury is swapping older bonds for brand new bonds.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Help me understand the reasoning of the Treasury department.
You sell some suckers bonds that pay far less interest than any reasonable person would ever hope to receive, and you then buy them out a few years later so you can issue bonds that pay way more interest? All to try to drive down long term bond rates when the Fed has turned on QT?
What am I not understanding? This seems like the stupidest thing ever.
Happy2 help out, so to speak.
They buy them back at a big discount, as I pointed out, for example at 88 cents on the dollar. So they lower the debt amount, but pay a higher interest on that smaller amount. In terms of interest expense, it should be a wash (the market works that way, no free lunches). But the overall debt is lower.
What it does accomplish is pushing down the yields a little in that end of the Treasury market because now there’s an additional buyer of hard to sell “off-the-run” Treasury securities.
Shouldn’t the price be lower than 88 cents on the dollar? The 10 year yield is about 4.2% now, the treasury sold 2020 was 0.677%. That’s about a 3.5% difference annually. 6 years left on the bond would roughly equate 3.5% times 6, that’s about 20% compared to the 12% discount they were bought back at. Is it safe to say the Treasury loses out on that difference? It seems like an act of mercy after screwing bond holders so bad!
And why the hell would folks buy long term bonds at low and negative rates? Did the expect the rates to go even more negative? If I recall SV bought some of those long term bonds and it led to that mess? You’d think decision makers at these large financial institutions have some math/prediction skills!
Maybe I’m missing something and that’s why I’m a lowly scientist/engineer.
I was thinking that too. There should be a much bigger discount to par with such a low coupon.
WestCoastLivin,
Your first paragraph: NO.
The buyer pays $880 for a note with a face value of $1,000, then gets 10 coupon interest payments (1.5% per year coupon interest) of $7.50 each, for a total of $75. Plus at maturity, the buyer gets $1,000. So in total, the buyer makes $75 in interest + $120 in capital gains = $195 in 5.5 years on an $880 investment. That’s just over 4% per year, roughly.
At the auction in August 2020, the notes were sold at a premium which got the “high yield” down to 0.67%. The auction results are linked under the CUSIP number, so you could look it up. But the holder gets the coupon interest payments of 1.5% a year ($15 a year per 1,000 in securities).
Your second paragraph: yes, at the time all the big bond gurus were predicting that the 10-year yield would go negative at the auction, as it had already done in Europe. Their hope was to make money on the price as the 10-year yield sinks deeper and deeper into the negative, which has turned out to be the miscalculation of the century, and three regional banks already got taken out and shot because of it.
“And why the hell would folks buy long term bonds at low and negative rates?”
I distinctly remember bragging about my refi at 2.5% 30 year fixed to a guy. Total refi cost was 1/4 point.
He mocked me and told me he got 1.5% I said “fixed?”, and he said “No, adjustable. Rates are going lower!”
That was a “stock tout in the elevator” moment for me.
Buying back at 88 cents to the dollar still means some entity was stiffed for 12 cents. I am envisioning that entity as a “too big to fail bank” that now is at one of the Federal Reserve’s myriad of cash cow windows being made whole.
Insurance companies need the higher interest rates from the new bonds, and they’re more likely to take the capital loss to get the higher cash flow. For them, it makes actuarial sense. A bank doesn’t really care as long as there is no run on the bank.
Hi, help me understand.
“At 58.78% of par value, bought back $40 million of 30-year TIPS”
What is the accounting for that? My understanding is government debt is recorded at par, so there used to be $40m of debt. It only cost $23.5 to retire that debt. They then issue $23.5m of new debt at a par value of $23.5m to pay for that.
So that leaves a profit of $16.5m to reduce the deficit this year.
Why is this not being done at scale to reduce debt as a percentage of GDP to lower levels? It doesn’t resolve the interest payments, the interest payments are a wash, but the lower debt as a percentage of GDP should result in a credit upgrade and lower yields?
1. Correct, it did reduce the debt.
2. But no, it doesn’t create a “profit” because the government isn’t a for-profit enterprise, and doesn’t do profit/loss accounting.
3. The government is paying a higher percentage interest rate on the buyback amount (borrowed at higher current rates), but it’s paying the higher percentage rate on a smaller dollar-debt amount, and so the interest expense in dollars should come out about the same (that’s how bonds are priced, markets work that way, no free lunch).
4. Because the dollar-interest expense is the same (see #3), this action has no impact on the credit rating of the US. Credit ratings rate the ability of the US to service its debts and the probability of it not being able to do so.
Thanks, I’m an accountant so the debits and credits have to balance to get my head around things. Government accounting is something of a mystery.
There are some interesting charts here looking at market value vs par value of national debt as a share of gdp. Back in October 2023 the market value of debt as a share of GDP got back to pre-pandemic levels. Par value was 33.7tn, market value 30.2tn, a 10% gap. With long term interest rates climbing again this level of difference may happen again soon.
https://www.dallasfed.org/research/econdata/govdebt#charts
I understand there is no free lunch, but given the focus on the particular statistic of debt as a share of gdp by the press and ratings agencies it would seem to still be beneficial to bring down that percentage? No free lunch, but also no real cost to do so, and a real possible benefit of a ratings upgrade, or at least avoid another downgrade, resulting in lower yields?
I don’t think that’s a good idea. The big risk with the government buying back its own bonds in a large way is two-fold:
1. It would have to issue even more new bonds, in the amount of the buybacks. So if it wants to buy back $100 billion a month at market value, it would have to issue an additional $100 billion in bonds a month, on top of the huge issuance already taking place. I would nearly double the new issuance. Maybe that’s getting kind of scary here.
2. If a large buyer is buying large amounts of illiquid bonds, those bond prices are going to jump a lot (yields go down), which means that the government is overpaying for these bonds. It needs to buy them back at big discounts for this to make sense. But if the discounts vanish because of its hefty buying, it would be shooting itself in the foot by overpaying for these buybacks.
The other accounting I don’t understand is what happens when the Fed converts all their long term debt to short term debt as described here
https://wolfstreet.com/2024/10/22/feds-qt-balance-sheet-composition-and-ample-liquidity-dallas-feds-lorie-logan-outlines-the-future-of-the-balance-sheet/
In the UK that is resulting in massive losses for the government, the Bank of England was the largest ‘sucker’ someone mentioned earlier who bought long term bonds at near zero rates, and is now selling them at a loss.
What is the US accounting when the Fed does their debt swap?
They bought debt at say $100, they are going to sell it for say $60. The par value of the debt remains at $100 on the government liabilities, where does the $40 loss go? Or does the debt now go down to $60, thereby knocking quite a few points off the debt to GDP ratio?
Some of the impacts of this massive debt swap from long term heavy to a much shorter term are described in this paper, but they don’t cover the massive losses that are going to happen on the sale of those long bonds when long term rates increase by a further 1% as the impact of operation twist and QE is unwound. Does US accounting mean there is no loss, just a debt reduction?
https://www.kansascityfed.org/research/economic-bulletin/considerations-for-the-longer-run-maturity-composition-of-the-federal-reserves-treasury-portfolio/
There will be no losses for the Fed when it shifts to shorter maturity holdings. The key principle is that the Fed did not, does not, and will not SELL Treasury securities (unlike the Bank of England which has been selling its long-term gilts). The Treasury securities come off the balance sheet when they mature, and the Fed gets paid face value, and there are no losses. That’s how it has been and that’s how it will be. If the Fed wants to shift to T-bills, it then reinvests the proceeds from the maturing longer maturities in T-bills. There won’t be any losses since it’ll get face value for the maturing securities.
The Fed currently has “operating losses” because its interest payments on reserves and ON RRPs exceed its interest income from its low-yielding securities portfolio. A shift to a portfolio of T-bills would reduce the likelihood of ever incurring losses in the future because interest income (short term rates from T-bills) would be aligned with the interest expense (short-term Fed policy rates paid on reserves and ON RRPs).
Haha…I’m a CPA myself, and before I had to take the exam I had no clue about government accounting and how different it was. My cluelessness is probably why I had to take that section of the exam 3 times!!
An interesting article from you would be a breakdown on what possible resolution there is to the massive federal deficit. Is there any hope or are we just doomed? Some have said a VAT tax? Obviously whatever the solution it involves hardship.
I’ve been posting this article over and over again. It’s a short article, something like 5 words long. It goes like this: “Inflation, moderate inflation, not hyperinflation.”
And that’s it. We’re not “doomed.” We’ll just have to live with higher inflation, something like 3% to 6% range. That’s the model Congress has chosen. It’s a convenient easy model. Inflation is a tax on every asset and on every income. Some people say it’s the fairest tax of them all. I’m not sure about that. It’s pretty insidious, if you ask me. But what’s the other option? Belt-tightening? You’ve got to be kidding here. That’s not the American way.
Yeah, we most all ARE a really stupid bunch that got this far on luck alone…..that and being mostly assholes AND stupid.
The proof will be when we decide to blow up the entire government and give it to Jesus……AGAIN and for the last time.
Fuck it, we deserve it.
Are the Treasury and the Federal Reserve working this in tandem? Or are they working this independently, as they claim?
The Fed has ZERO to do with these buybacks.
In fact, the Treasury is doing this to counteract the Fed’s monetary policy. The government has done everything it can to manipulate DOWN long-term yields over the past two years, while the Fed has tried to PUSH UP long-term yields with QT and higher rates to crack down on inflation. They’re essentially fighting each other.
The Federal Reserve and the Treasury do work together; I have seen with my own eyes a video on YouTube where Powell and Yellen are at the very same Congressional hearing giving testimony. The Federal Reserve and the Treasury are like an engine and transmission.
Sure they work together on all kinds of financial plumbing issues, for example on the Pandemic-era policies, including the SPVs that the Fed set up with approval and equity funding from the Treasury (which would take the first loss) to buy assets, such as corporate debt. The New York Fed is also the bank of the Treasury whose checking account (TGA) is there. When there is a banking crisis (March 2023), the Fed, the Treasury, and the FDIC work together and issue joint statements. All this stuff is routine and deals with the plumbing issues of the financial system.
But that’s different from monetary policy (tightened) conducted by the Fed and fiscal policy (expansionary) conducted by the government.
During the pandemic, were not the Fed and Treasury closely “working together”? The Treasury issuing trillions of UST debt securities; the Fed buying trillions in the open market? While in theory they are antagonistic, in practice they seem to be two love-birds who only occasionally get in a spat.
>The government has done everything it can to manipulate DOWN long-term yields over the past two years
Interesting! What do you base this on? The volume of buybacks seems quite low to significantly influence long-term yields.
Shifting issuance to T-bills from longer maturities was the biggie:
And there was me thinking it was just a work around for the government debt limit. The Treasury redeems $1.00 of par value debt for $0.88, which reduces the debt with respect to the limit by $1.00. It then issues $1.00 of par value debt for $1.00, at a higher interest rate, which brings the debt with respect to the limit back to where it was originally, but with $0.12 in hand.
That’s nonsense. I don’t know how you people can twist everything around like this.
The Treasury issues new Treasuries all the time to raise cash, and some of that cash went to buy back old debt at 88 cents on the dollar, and so the buyback had the effect that the debt fell by the amount of the discount.
And the amounts are way too small to make any difference in terms of any debt limit ($7 billion a month, of $35.8 TRILLION in debt. It’s not even a rounding error.
My whole point, the debt fell by the amount of the discount, which means, with respect to the debt limit, that new debt can be raised by the amount of the discount. I accept that the amounts may be insignificant.
This is such a good idea, why don’t they scale up and trade in size?
By issuing bonds when rates are low (recessions), and buying them back when rates are high (periods of growth), they could finance a good part of the deficit – or maybe even use the trading profits to amortize the debt!
Call it Keynesian Bond Trading…
It can buy bonds only by issuing new bonds to raise the cash to buy back the old bonds, dollar for dollar. Those two always go together. The government is not sitting on a Strategic Cash Reserve (SCR) or whatever that it can deploy to buy back bonds.
But what it can do and should do, is issue lots of long-term debt when rates are low, and issue more T-bills when rates are high, and then refinance the T-bills with long-term debt when rates are low again.
The Treasury failed to issue lots of long-term bonds when rates were low in 2020 and 2021. But in a way, that was a good thing, because if it had issued lots more of this long-term stuff, it would have ended up on our banks’ balance sheets, and our banking system would have been toast by now. Maybe they figured this much in 2020 and tried to not blow up the banking system in the future.
So, to follow your logic, do you think the BofE is about to blow? Here in the UK inquiring minds want to know….cheers!
No, the BOE is fine. And it’s doing the right thing selling those bonds. During QE it remitted lots of money to the government (its profits from the securities holdings), and now the UK taxpayer is going to refund some of those profits because the government and the BOE have an indemnity agreement which states that the government has to cover the losses from the bond sales. That’s the deal they have, and they’re doing it. It just strains the government’s budget a little more.
Doesn’t that mean they knew they were creating pervasive inflation by that logic?
Mr. Richter,
“The Yellen Treasury failed to issue lots of long-term bonds when rates were low in 2020. But in a way, that was a good thing, because if it had issued lots more of this long-term stuff, it would have ended up on our banks’ balance sheets, and our banking system would have been toast by now. ”
Excuse my ignorance, but why (how?) would Banks “have” to end up with these on their balance sheets. Are you assuming that banks would just (automatically) purchase these long-term bonds regardless of maturity? And at low rates?
“Are you assuming that banks would just (automatically) purchase these long-term bonds regardless of maturity? And at low rates?”
Not “assuming.” That’s EXACTLY what banks DID, which is why they now have over $500 billion in “unrealized losses” on their balance sheets.
Wolf,
On the issue of the Treasury issuing
bonds of durations meant to try to
prevent chaos in the banking industry:
Maybe the Treasury could issue bonds
of optimal duration for their purposes,
and (stick with me here, because this
is where it gets wiggy) banking
regulators such as the Federal Reserve
could try to regulate banks so that
the banks don’t blow themselves up
with stupid bet-the bank decisions.
“We are only going to have very large
accounts that can leave at the drop of
a hat!”
“We will have low interest rates for
ever!”
“We bet it all on black!”
I called out the Federal Reserve
particularly only because they seem
to have difficulty remembering that
they really are supposed to be a
bank regulator, too.
J.
—————————————–
I’ll admit that I paused between
reading the headline and clicking
the article, to try to figure out the
benefit of this to the government,
or the public good. Besides simply
being a favor to the primary
dealers, the only thing I came up
with would be to help a bit while
debt ceiling shenanigans were in
play.
Hm, maybe the Treasury is trying
to date-the-rate and refinance
later, as the used house salesmen
say.
There was no Yellen Treasury in 2020.
OOPS, time flies when we’re having fun.
Wolf, help me understand something:
/Why/ are off-the-run coupons harder to sell? Don’t they just trade at enough of a discount that the effective yield-till-maturity is the same APY as a newer coupon?
What’s the different between a 10Y note with a half % coupon that trades at a big discount, and a zero coupon bond? Do investors/traders not like zero coupons with that much duration?
Wolf – second this question from ShortTLT and add:
2. Is the sole purpose of buying back a long duration bond at or near par solely for creating liquidity in that market? You listed one or two bonds that were bought back at or close to par. They’re not reducing the overall debt and the coupon on those seemed roughly in line with today’s treasuries so what was the point?
#2. No the effect and therefore the purpose is to push down longer-term yields.
they ARE reducing the overall debt with this, but only at a very small level that doesn’t really matter in the huge pile of debt. And the interest expense stays the same (higher rate on a smaller amount).
Wolf: Higher long-term rates have slowed down the mortgage market at just below 7% for the 30-year term.
Do you think the Treasury can lower long-term rates enough to make a difference, e.g., boost home sales?
Each bond issue is different, different maturity, different coupon payment. It’s not like shares of Apple. All shares of Apple are the same. But not all 10-year notes are the same.
Bonds by nature are illiquid. They were never designed to be traded like stocks. Investors were supposed to hold them to collect interest till maturity. But that’s no longer the case. Now bonds are traded for trading gains, often in leveraged operations.
Just look at your broker’s section of Treasury securities for, say, 2 years. And you see what’s for sale, it’s a hodgepodge of stuff, from 30-year bonds with two years left to 3-year notes with two years left, to a recently issued 2-year notes. None of them will be exactly two years, but roughly two years, such as 22 months or 26 months or whatever.
So this is fine if you sell $100,000 of securities, you’ll take your spot in the lineup, and if you agree to the price, you’ll sell with a little haircut. But if you sell $1 billion of an issue, you need to find buyers for that one specific issue.
And you never get the yield that would be indicated by the market yield.
I think that’s fine, and I don’t think the Treasury needs to solve this issue, it’s just part of what bonds are. But I can see how they’re trying to make this corner more liquid.
There are all kinds of liquidity issues in the Treasury market, that came out big time during March 2020, when it essentially seized. This includes transparency in the market, ease of trading, etc. And regulators are trying to figure out how to resolve those issues.
Thanks Wolf.
Seems like the government is bailing out some of these bonds that are worth way less then what they were bought for… Another form of yield control.
Gonna be great when these clowns lose control on
the curve.
It’ll actually be terrible and probably worse then the GFC but that’s the bed our leadership has made
What is the employee of the fed called whom negotiates, transacts and record keeps this kind of auction?
Do they interact mainly with banks as the broker to the holder of the securities?
Just curious thanks
*meant The Treasury*
From the Treasury:
“Treasury conducts buyback operations only with primary dealers designated by the Federal Reserve Bank of New York (FRBNY); customers may access buyback operations through a primary dealer. Primary dealers, as submitters, are responsible for delivering any securities Treasury accepts in a buyback operation, including any securities for which offers were submitted on behalf of others. ”
Here is the list of the primary dealers:
https://www.newyorkfed.org/markets/primarydealers.html
Interesting
I’m a litte confused as to why older “off the run” bonds are hard(er) to trade. Don’t they just act/look like “new” bonds that are of the same remaining duration? Is there a pricing or liquidity issue?
An old 30-year bond with 8.5 years left should trade right between the current 7 and 10 year yields, yes? That would be a bond from 2003 issued probably at around 5.5%, now trading at a premium with current rates at ~4%?
I guess I need to do my research..
Apparently high inflation isn’t good for off run TIP bonds. It’s really all about the yield. My own take is that you don’t buy bonds for the yield you but them for the deflationary insurance, when MS contracts and the spending power of the dollar rises, and credit is scarce. The forex dollar rises and imports drop or gets slapped with tariffs. Treasury direct now takes up to a year to process a bond sale. I would call that bureaucratic orphaning but either way buybacks aren’t helping bond owners. FYI Bill Gross has a new investment, he is pushing MLP pipeline stocks.
Wolf
“Not “assuming.” That’s EXACTLY what banks DID, which is why they now have over $500 billion in “unrealized losses” on their balance sheets.”
where could i find the same data for Insurance companies?
In terms of overall data, I don’t know. But they’re talking about it in their earnings calls and financials from time to time.
I don’t really worry about insurance companies because they have a different business model than banks. Insurance companies can predict what their cash outflow will be in future years and decades. They cannot get a run on the bank, as banks get. So insurers normally hold to maturity and there is no risk that they have to sell before maturity. But they can do the math, and if it’s better for their future cash flows, they can rotate their portfolio a little from low yielding older bonds to higher-yielding newer bonds. And some are doing that, and they’re discussing it because they have losses when they do, and they want to explain those losses.
The bond market is normally a very boring topic…yawn….HOWEVER…are these the rumblings before the BIG ONE?
Why are the 5-year and 10-year yields rising for both Canada and the States?
Last week, the BoC did a 0.50% rate cut in one swoop, and everyone and their dog were celebrating that Canadian homes will be measured in increments by the half millions, and Toronto homes will sell for $2 million and increase tenfold in a few years.
Yet the Canadian 5-year is rising and not going below 3%. The lowest it was in early 2020 at 0.5%.
Why should it not rise? Short-term yields go down with rate cuts, longer-term yields dance to the drummer of projections for future inflation and supply. Maybe the fear is that the BOC’s aggressive cutting might lead to more inflation, and so longer-term yields rise.
Thanks for clarifying.
A lot of homeowners and investors here believe that the 50bps cut would lead to the glory days of 0.99% teaser rates and Toronto homes increasing in value by $100,000 every other month like in 2021 and 2022.
Why did the Treasury stop selling paper U.S. Savings Bonds?
You can still buy paper I series savings bonds (I bonds) with your tax refund from the IRS for the rest of this year.
Paper bonds are a huge hassle for everyone and a risk for holders. In addition, holders have to mail them to the government to cash them in — if they haven’t lost them by then. The government should have stopped selling them two decades ago. When was the last time you got paper stock certificates after you bought some stock? This paper stuff is just nuts today.
Mr. Richter,
I was aware that a lot of Banks DID extend duration and purchased longer dated Bonds (mostly Treasury’s?) back in 2020/2021 and that the aggregate total losses on security portfolio’s for the entire system was north of 500 Billion.
For a long time I’ve scratched my head wondering why the hell the Treasury didn’t issue 100 year bonds back when money was dirt cheap. Yes, a lot of Banks did buy long dated bonds and extend durations at what were (historically) low rates. Silicon Valley Bank and First Republic probably being the worst offenders. They imprudently borrowed short (variable) and lent long (fixed) and probably weren’t hedged appropriately, but I’m sure a lot of Banks didn’t engage in this risky behavior.
Just for kicks I looked up the most recent 10Q’s (second quarter 2024) for the Held-to- Maturity (HTM) portfolios for JP Morgan and Wells Fargo.
JP Morgan had 323.7 Billion, with a Fair Value of 294.8 Billion indicating a potential loss of (28.9) Billion should they desire or have a
“JP Morgan had 323.7 Billion, with a Fair Value of 294.8 Billion indicating a potential loss of (28.9) Billion should they desire or have a”
That $28.9 billion loss would eat up less than two quarters worth of net income. So JPM would just break even for a couple of quarters. Net income in Q3: $12.8 billion and in Q2: $18.0 billion, combined $30.8 billion. Not the end of the world for a bank to break even.
Not many comments on this one.
Wanna know why?
Nobody can phrase their questions right, and they can’t be answered, anyway.
That’s the nature of hitting moving targets…..too many variables.
Pretty easy physically, though.