00:00 – Intro
02:29 – Yield Basics
04:30 – The Yield Curve
05:15 – Why Are Yields Rising Now?
09:19 – Why Higher Yields Might Hurt the Economy
12:45 – Concerns Around Banks
14:30 – Other Considerations
17:08 – Closing Thoughts
There was a lot of talk last week about the rising US Treasury yields – let’s take some time to explain what exactly is going on.
This channel is for education purposes only and does not constitute financial advice – Richard is not responsible for investment actions taken by viewers. Please seek out a registered advisor if you require assistance (while Richard is a registered portfolio manager at WDS Investment Management, he does not provide advice through The Plain Bagel, which is not affiliated with his employer)….(read more)
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What Rising Treasury Yields Mean for the Economy
Treasury yields, or the interest rates on government-issued bonds, play a vital role in shaping the economy. As investors and analysts closely monitor these yields, any significant changes can have far-reaching implications. Recently, rising Treasury yields have attracted attention and sparked discussions on how they may impact the economy.
To comprehend the effects of rising Treasury yields, it is essential to understand the relationship between bond prices and interest rates. When Treasury yields rise, the prices of existing bonds decrease. This occurs because investors demand higher yields to compensate for the newly available high-yield bonds. Conversely, when Treasury yields decline, bond prices increase as investors scramble to secure a higher return on their investments.
One of the most immediate and visible consequences of rising Treasury yields is the cost of borrowing. As bond prices drop, so do the prices of mortgage-backed securities. Consequently, mortgage interest rates increase, making it more expensive for consumers to finance their home purchases. This rise in borrowing costs can dampen demand for housing, potentially slowing down the real estate market.
Moreover, rising Treasury yields can have a ripple effect on various sectors of the economy. When companies need to raise capital, they often issue corporate bonds. These bond prices are closely influenced by Treasury yields. As Treasury yields rise, corporate bond prices tend to follow suit, making these bonds less attractive to investors. As a result, companies may find it more challenging to secure financing, impacting business expansion, innovation, and job creation.
Investors, too, feel the effects of rising Treasury yields. As bond yields rise, the appeal of risk-free government bonds increases. Consequently, investors may shift their investments away from riskier assets such as stocks and towards Treasury bonds. This reallocation of investments can lead to downward pressure on stock prices, negatively impacting the stock market and potentially affecting investors’ portfolios and retirement savings.
Rising Treasury yields can also have implications for the global economy, particularly in emerging markets. As Treasury yields increase, the relative attractiveness of investing in emerging market bonds diminishes. Investors may choose to repatriate their funds to the US, seeking higher returns on Treasury securities, which can result in a sell-off of emerging market currencies and increased borrowing costs for these nations.
However, rising Treasury yields are not necessarily negative for all aspects of the economy. They can also be seen as a positive signal, reflecting confidence in the economy’s strength and future prospects. Higher yields can attract international investors looking for higher returns, further boosting capital flows into the country and stimulating economic growth.
In summary, rising Treasury yields have profound implications for the economy. They can raise borrowing costs, dampen demand in the housing market, impact corporate financing, increase investment in Treasury bonds, put downward pressure on stocks, and influence global capital flows. Nonetheless, rising yields can also demonstrate confidence in the economy and attract international investment. As such, policymakers, investors, and economists need to closely monitor Treasury yields and assess their impact on various sectors to effectively navigate the evolving economic landscape.
That's an amazing crash course in bonds in just 18 minutes.
Can someone drop me the link with the future fund rates probabilities, I just don't find it. Thanks
Why tips yields so low while treasuries are high? Is the market pricing in high inflation relative to the 30yr treasury?
This guy doesn’t know economics and misallocation… he’s strictly finance. Rising yields always expose irrational behavior and there is no such thing as monetary policy controlling wealth of society.
Why buy second hand bonds? If Govt is always issuing them what buy from someone else?
it doesnt make sense higher but they going down tbeir is a mistake why sell just hold and never sell is the way
helping the channel with a comment
inverted yield curve will revert, but Richard you have a child ?????
YOLO move…
Based on the assumption that FED will lower rates in the future.
Take out ALL THE DEBT YOU CAN to buy AS MUCH 30-year bonds as you can.
As interest rates drop, refinance that debt you took to buy the bonds, while cash-flowing the difference for 30 years.
Excellent video ❤
Watched the whole video, good information!! When you said “it’s my child” I deleted my previous comment
I think you need to reconsider crypto, such as bitcoin. Make a new video
So would it be safe to say that it is better to look at buying T-bills and maximizing the higher returns for shorter hold periods until the yield curve begins uninverting?
Can someone explain to me why any of these banks would have bought so many long dated bonds at such a low yield?
Even if they've plenty of cash to not get caught out on deposits why would they do it in the first place? Surely no one least of all bankers thought interest rates would stay below 0.5% forever?
Why not just buy short dated bonds and just keep rolling them over?
Scary how much I agree with your point of view. I am invested in Stocks, Munis and annuity. Managed by Merrill Lynch and BAC. So I worry.
Can u dig deeper into why bonds are losing money as a whole? Do you mean old bonds ? Right now it’s a mix of new and old so the discount is high right? So are there more unprofitable bonds than profitable bonds in the market?
I want a higher return, where do I send my demands.
this is gold.
It’s not that your no good explaining stuff because you very much are. It’s that your talking to a dumb dumb (me) and I will have to watch the video again. Everyday seems to be a day of gloom when I have an insignificant amount of money in the stock market.