Why bonds matter for real estate investors. What are the 10-year treasury rates? | Mark Ahern posted on the topic | LinkedIn (2024)

As I publish another post on Crowwd, I can't help but think about the recent major announcements from the U.S. Treasury Department. They announced a slowdown in issuing long-term Treasury bonds to combat rising borrowing costs. The decision comes after the Treasury increased overall borrowing significantly in August. In the following months, yields on the U.S. 10-year Treasury note and 30-year government bonds reached fifteen-year highs 📈💰.Under the new rules, the U.S. Treasury Department will continue to increase the issuance of short-term Treasury bonds at the rate of the previous three months but will reduce the issuance rate of 10-year and 30-year bonds. To meet borrowing needs, they will increase the size of two- and five-year Treasury auctions by $3 billion per month. Meanwhile, the 10-year bond auction will add $2 billion, while the 30-year bond auction will add only $1 billion. At next week’s upcoming quarterly debt refinancing auction, the U.S. Treasury will sell $112 billion in debt, slightly less than the $114 billion it offered last quarter 📊💵.This plan caused the yield on the 10-year U.S. Treasury note to fall. The decline was exacerbated by the release of economic data, particularly underperforming U.S. manufacturing data and the Federal Reserve's interest rate decision. During New York trading hours, the 10-year Treasury yield fell 0.11 percentage points to 4.76%, the lowest level in two weeks ⬇️💹.This week, the U.S. Treasury Department also made an announcement. They plan to borrow $776 billion between October and December, instead of the massive $1 trillion in the previous quarter. They said this was due to "increased spending". But here’s a little secret, they are also charging more taxes 💼💰.Why are bond yields rising? Investors believe U.S. government debt is affecting the economy. Additionally, the Federal Reserve has indicated that it may keep interest rates high for quite some time.Just this Wednesday, the Federal Reserve did not change interest rates, which were at a 22-year high. But they are still watching closely for signs of tightening monetary policy. However, they are confident that the US economy is doing great 🇺🇸💪.All of these changes reflect their active debt management strategy and response to investor concerns. Feeling very excited, I published a new post on Crowwd to share this key information. I hope you will follow this important topic on my Crowwd too! https://lnkd.in/eHJMA-e2👍📢 #bondmarket #USEconomy #FedPolicy #InvestorConcerns #fiscalpolicy #Crowwd

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Keep your eyes on the road series : US Treasury's upcoming 2H 2023 issuance plans !------------------------------------------On July 31st, the US Treasury published its marketable borrowing plans for the second half, 2023. Broad media reports have generally highlighted the 3rd quarter 2023 plan of around US $ 1 trillion, and not highlighted what follows in Q4, 2023 - another whopping US$ 800 billion. Which takes the planned borrowing estimates just for the 2H 2023 to an eye watering USD 1.8 trillion.If you have followed my posts you would note that since President Biden's passing of the Fiscal Responsibility Act of 2023 on June 3, 2023 the US national debt has risen to US$ 32.60 trillion, i.e. an increase of US$ 1.13 trillion in around 8 weeks (!). Phew.Smart money is sitting up and taking note. Very generally, Bill issuances are generally considered as economy and market stimulative due to the immediacy of the spending of borrowed funds - on the other hand the impact of Note issuances, while generally considered stimulative is not a consensus agreement - when the amounts are of this magnitude. There is an interplay with cost of borrowings (what is the cost?), sources of borrowings (where do the funds come from ? markets? is there crowding out of other borrowers?), deployment of borrowed funds etc are all to points to consider.Pasted below is verbatim from the US Treasury's announcement. Link to further reading below:------------------------Treasury Announces Marketable Borrowing Estimates : July 31, 2023The U.S. Department of the Treasury today announced its current estimates of privately-held net marketable borrowing[1]for the July – September 2023 and October – December 2023 quarters.During the July – September 2023 quarter, Treasury expects to borrow $1.007 trillion in privately-heldnet marketable debt, assuming an end-of-September cash balance of $650 billion.[2]The borrowing estimate is $274 billion higher than announced in May 2023, primarily due to the lower beginning-of-quartercash balance ($148 billion) and higher end-of-quarter cash balance ($50 billion), as well as projections of lower receipts and higher outlays ($83 billion).[3]During the October – December 2023quarter, Treasury expects to borrow $852 billion in privately-heldnet marketable debt, assuming an end-of-December cash balance of $750 billion.[4]Sources, references and further reading:————————————https://lnkd.in/gETTNzQrhttps://lnkd.in/gZG7u-nw#markets#investing#keepyoureyesontheroadseries #smartmoney This information is from market related news that I read on public sources. Information from public sources is often erroneous. Please expect errors and omissions in the information. This is not trading advice and is meant for academic reference only. Please do your own research on the respective websites of the data providers.

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Market toolkit and technicals cheat sheet series :: Understanding US Treasury’s Quarterly Refunding Announcements - What are these and what is the buzz all about ?—--------------------------------------------------Last week’s much needed rally across almost every asset class was anticipated by smart money (as my previous posts hinted). What was a bit of a surprise and has smart money reassessing the coming quarters is the US Treasury’s Quarterly Refunding Announcements. In a large part, this announcement and its timing has further fuelled the market rally and positioning (including short covering), which hopefully continues in the coming weeks. Lets understand our benefactor : The Quarterly Refunding Announcement is a public statement made by the U.S. Department of the Treasury on a quarterly basis. This provides information about the Treasury's plans to finance the national debt. It includes details about the types and amounts of new Treasury securities that will be issued. The announcements are closely watched by financial markets, as they can influence interest rates and the overall economic climate.Midweek on Wednesday, Nov 1, 2023, the US Treasury Department announced that it will slow the pace of increases in its longer-dated debt auctions in the Nov 2023 to Jan 2024 quarter. The department said it expects to need one more additional quarter of increases after this to meet its financing needs.The announcement came as a relief to investors, who had feared that the Treasury would need to borrow more heavily to fund the federal budget deficit. However, the Treasury said that it was able to reduce its borrowing estimate for the Oct-Dec quarter from $ 852 billion to $776 billion (a reduction of $ 76 b). This was partly due to income tax payments from some states that had been deferred due to natural disasters now starting to flow in.(In contrast to last quarter when the U.S. government said it expected to borrow $1.007 trillion in the Jul-Sept quarter, $274 billion more than it had predicted in May, sparking a large bond sell-off).The market reaction to the Treasury's announcement was positive. Yields on benchmark 10-year Treasury notes fell about 8 basis points on the day, dropping below 4.8% for the first time in about two weeks.The Treasury's decision to slow the pace of auction increases is a sign that the government is becoming more confident about its ability to manage its debt burden.References :------------https://lnkd.in/gP4rbF7S#markets #investing #smartmoney #MarkettoolkitandtechnicalscheatsheetseriesThis information is from market related news that I read on public sources. Information from public sources is often erroneous. Please expect errors and omissions in the information. This is not trading advice and is meant for academic reference only. Please do your own research on the respective websites of the data providers.

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With interest rates at their highest levels in decades, there’s been increased interest in US Treasuries – debt securities issued by, and backed by the full faith and credit of, the US government. Here’s what you need to know about two types of Treasuries: Treasury bills and Treasury bonds. Information presented is believed to be factual and up to date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice but are limited to the dissemination of general information. Consult with a professional advisor before implementing any of the options presented. Third party posts are for informational purposes only and are not intended to be a solicitation or substitute for individualized investment advice. Information provided is believed to be from reliable sources, but no liability is accepted for any inaccuracies. Information found on this site is for informational purposes only and is not intended to be a substitute for specific, individualized tax or legal advice. Always consult with an attorney or tax professional regarding your specific legal or tax situation. Past performance is no guarantee of future results. Advisory services offered through Sowell Management, a Registered Investment Advisor.

Been doing some research on the contents of this article, and the findings are very interesting…The Treasury General Account is essentially the U.S. Treasury’s bank account where they store cash for spending. Every $1 that flows out of the TGA is $1 that flows into banking reserves, and vice versa.The Treasury borrowing over $1 trillion now that the debt ceiling has (again) been raised, this threatens to drain reserves from the financial system. Why is this an issue?Firstly, the Treasury is directly extracting reserves from the financial system when it needs them the most. With the recent bank failures, continuously falling bank deposits, and an increasing need for liquidity, the expected outcome would be for reserves to increase, not reduce.Secondly, the over-supply of U.S. government debt will likely increase yields. In other words, increasing the cost of government borrowing. This then filters down to consumers, increasing interest rates on products like mortgages. This comes at a time when the U.S. has a 70.85% chance of falling into recession (according to Y-Charts) in 2024.#treasuryyields #debt #investmentsUS Treasury’s $1tn borrowing drive set to put banks under strain https://on.ft.com/45Rh4OP

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The U.S. Department of the Treasury today announced its current estimates of privately-held net marketable borrowing for the October – December 2023 and January – March 2024 quarters. The U.S. Treasury plans for a new issuance of debt to the volume of $1.592 trillion in the next six months.👉During the October – December 2023 quarter, Treasury expects to borrow $776 billion in privately-held net marketable debt, assuming an end-of-December cash balance of $750 billion.👉During the January – March 2024 quarter, Treasury expects to borrow $816 billion in privately-held net marketable debt, assuming an end-of-March cash balance of $750 billion.👉America’s adversaries (the axis of evil, as they refer to them) will just seek that this new trend of American borrowing persists until 2030. A new American war in the Middle East is more than enough for achieving the goal without a shot. By 2030, the net privately-held marketable debt of the U.S. will then skyrocket to $50 trillion dollars and an estimated interest expense of $2.5 trillion dollars per year. It will be a watershed moment for the international monetary order. The U.S. dollar will be unmoored & likely cease to be the world’s invoice currency.

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You can actually watch the Treasury balance fall on a daily basis. The Treasury website publishes the balance of the Treasury General Account (TGA), which is essentially the nation's checking account. The Treasury Department even discloses daily deposits and withdrawals. The last update on May 31 indicates that the TGA balance is now below $40 Billion. That balance is down from $231 Billion at the start of May and almost $450 Billion at the end of 2022. If you want to see for yourself, the data is all available for download here: https://lnkd.in/gYKdnaE2I'm sure that no one will be surprised to learn that Treasury balances are dwindling. But as everyone is well aware, a deal is in place and once the Senate approves and Bides signs, the crisis is averted, right? Not necessarily....Looking back at the TGA balances from last past year, well before the debt ceiling was an imminent issue, the TGA balance averaged $884 Billion, compared to under $40 Billion today. In other words, the nation's checking account balance is $840 Billion lower today than it was at this time one year ago. And at some point, after Congress takes action, the Treasury Department is going to look to build back their checking account balance...and building it back is where many folks are worried.What happens as the Federal Government attempts to build back the TGA balance? Lots and lots of Treasuries need to be sold (and bought!). You are looking at potentially $1 Trillion in new Treasury issuance over the back half of this year...just to catch up to where we were one year ago! And this potential deluge of new Treasury bond issuance leads to a ton of questions: How quickly will the Fed rush to build the TGA back up to normal levels? Who will buy this debt? Is there any chance foreign buyers step in as they have done in the past? Will interest rates rise quickly? What is going to be the impact to bank deposits? How will commercial and mortgage debt markets be impacted?Given the backdrop of quantitative tightening, it's possible that the Treasury Department gradually builds back to normal balance levels over time. It will be fascinating to monitor the Treasury bond auction market and the TGA balance to see how aggressive the Fed will be, as liquidity tightening is a growing risk. In the meantime, Northern Trust has a variety of cash investment solutions in our asset management, treasury, and securities finance groups that can help weather any liquidity crunch.

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If Congress fails to take swift action, there are two potential scenarios in which yields on 10-year Treasury notes, which typically correlate with long-term mortgage rates, could increase.Firstly, if investors begin to doubt the risk-free nature of Treasury notes, demand for them may decline, causing yields to rise. This uncertainty could arise due to concerns about the safety of Treasuries as an investment.Secondly, bondholders may demand higher interest rates to compensate for the increased risk associated with holding Treasury bonds. In this case, they would seek higher rates to offset their greater exposure to risk.In both situations, the upward movement in yields could exert upward pressure on mortgage rates.However, historical precedents suggest that yields on 10-year Treasuries might remain unaffected or even decrease, even if Congress does not vote to raise the debt limit.This was demonstrated in August 2011 during a debt ceiling crisis when the U.S. government's sovereign credit rating was downgraded from AAA to AA+ by the Standard & Poor's bond rating department. Despite this downgrade, Treasury prices actually rallied immediately as investors continued to perceive them as safe-haven assets in an uncertain economic climate.In contrast, the yield on the 10-year Treasury, which serves as a benchmark for mortgage rates, dropped from 2.58% on August 5, 2011 (the day of the S&P announcement), to 2.40% by August 8. It took until June 25, 2013, for yields on the 10-year Treasury to return to the 2.58% range.Experts have differing views on whether Congress will promptly raise the debt ceiling, but there is a general consensus that failure to do so would have severe economic consequences.David Sacco, an instructor at the University of New Haven, believes it is highly unlikely that the government will not raise the debt ceiling, comparing such an outcome to a "nuclear war." Sacco explains that the debt ceiling debate often involves political brinkmanship, with parties seeking to make political statements and secure concessions before agreeing to raise the debt limit.On the other hand, some, like Wendy Edelberg (Brookings Institute Economist), are less certain that the debt ceiling will be raised by June. She expresses concerns about individuals within the government who may be deliberately instigating chaos. Edelberg suggests that those who oppose the government's role may prioritize sabotaging the economy over engaging in good-faith negotiations. She predicts that these actors may only be disciplined if a stock market crash and rising interest rates occur, expressing worry that they may lack the self-discipline to prevent such outcomes.What are your thoughts on the debt ceiling negotiations? #economy #interestrates #mortgage

Government securities (G-Sec) are often known for their safety and guaranteed returns. Today, let's discuss one of the G-Sec - Treasury Bills, often referred to as T-bills.Before that, a quick brief about Government Securities. Imagine you're lending money to the government, and they promise to pay you back with a bit of extra cash as a token of appreciation for your money and trust. Well, that's precisely what Government Securities are all about.Government Security (G-Sec) is a tradeable instrument issued by the Central or State Governments. It acknowledges the Government’s debt obligation. And there are three major types of G-Sec. They are -1. Treasury Bills (T-bills) - Bonds issued by the Central Government with less than 1 year of maturity2. Government Bonds - Bonds issued by the Central Government with more than 1 year of maturity3. State Development Loans (SDLs) - Bonds issued by the State GovernmentsAnd today, we will focus on Treasury Bills (T-bills).What are Treasury Bills?T-bills are short-term debt instruments issued by the RBI on behalf of the government to raise funds. They are one of the safest investments out there because, in essence, you're lending money to the government, which is typically a reliable borrower.Based on the maturity period, there are three variants of T-bills. They are 91 days, 182 days, and 364 days.With a minimum investment amount of ₹10,000, the Treasury bills are zero coupon bonds as they pay no interest. T-bills are issued at a discount to their face value, and upon expiry, it’s redeemed at their face value.How do treasury bills work?The RBI auctions T-bills almost every week, with maturities ranging from 91 days (3 months) to 364 days (1 year).Here's a simplified step-by-step guide to how T-bills work:1. Auction process: The RBI announces the auction dates and the amount of T-bills it intends to sell. Investors, including banks, and financial institutions, submit bids specifying the quantity of T-bills they want to purchase and the yield (coupon rate) they are willing to accept. This process is similar to IPOs.2. Competitive bids: These are bids from large investors who specify their desired yield. The RBI accepts bids starting from the lowest yield and moving upwards until the entire issue is subscribed.3. Non-competitive bids: These are bids from retail investors who are willing to accept the yield determined by the competitive bidding process. All non-competitive bids are accepted in full.4. Allotment: The RBI then determines the cutoff yield, which is the highest yield at which it can sell the T-bills and still meet its borrowing requirements. Competitive bidders who bid below this cutoff yield receive T-bills, while non-competitive bidders receive them at the cutoff yield.To know the benefits and disadvantages of investing in Treasury Bills and whether they are suitable investments for you, check out our blog.

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Meanwhile under the radar series : The US Treasury General Account (TGA) and its impact on liquidity and capital markets - what is Smart Money doing ?--------------------------------------—————While investors are fixated on the noisy, live-wire commentary of the US debt ceiling negotiations - Smart Money is discussing and silently preparing for what happens next. Here’s what you need to know:The Treasury General Account (TGA) is an account held by the U.S. Department of the Treasury at the Federal Reserve, which is used to manage the federal government's daily cash flow needs. The TGA impacts liquidity and thereby capital markets. Lets see how: When the TGA balance increases, it can lead to a reduction in the supply of reserves in the banking system, as funds are transferred from private bank accounts to the TGA (Duffie & Krishnamurthy). This reduction in reserves can put upward pressure on short-term interest rates. Conversely, when the TGA balance decreases, it can increase the supply of reserves, putting downward pressure on short-term interest rates and easing financial conditions (Bonis, Ihrig, & Wei). The impact on capital markets can also be observed through its influence on the demand for Treasury securities. High TGA balance = fewer security issuance by the Treasury to finance government spending = reduced supply of Treasury securities in the market and lower yields (Duffie & Krishnamurthy). Low TGA balance = issue more securities, increasedsupply of Treasury securities in the market = potentially higher raising yields. The TGA impacts the repo market as well. Now, let's revisit the impact of the TGA on liquidity during the debt ceiling episode in 2011, which led to a significant increase in the TGA balance as the Treasury took extraordinary measures to conserve cash. This increase in the TGA balance drained reserves from the banking system, leading to a tightening of liquidity conditions and a spike in short-term interest rates (D'Amico, Kim, & Wei). Will this precedence recur? How aggressively will the TGA balances be rebuilt? How much liquidity will additionally be drained with the already high (and likely higher for longer) Fed Funds and ongoing QT? Smart money is already preparing for this.Referencesand further reading:https://lnkd.in/gkZVUAssThe effect of the federal reserve's securities holdings on longer-term interest rates. https://lnkd.in/gUmYAixE Duffie, D., & Krishnamurthy, A. (2016). Bonis, B., Ihrig, J., & Wei, M. (2017). The effect of the Federal Reserve's securities holdings on longer-term interest rates. American Economic Journal: Economic Policy.D'Amico, S., Kim, D., & Wei, M. (2014). Tips from TIPS: The informational content of Treasury Inflation-Protected Security prices. Journal of Financial and Quantitative Analysis.How has the influence of monetary policy on the U.S. Treasury market changed over time? Finance and Economics Discussion Series.#meanwhileundertheradarseries #smartmoney

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