Quote (excellence @ Mar 11 2021 02:16pm)
Its more stimulus. Banks buy bonds to flood more money into the market. Bonds also went up 50% recently (10-year went from like 1.1% to 1.6%) so its attractive to lock those in
Yields went up because bonds were selling off. Bond yields and bond prices are inversely related. People were dumping bonds because it doesn't make sense to hold an asset that gives you a coupon of 1% on a 10-year bond when the inflation will be double that, you're essentially losing money due to inflation.
So what happens is the yields have to rise to make those same bonds appealing as they are selling off. That's why we say such a huge jump in yields.
The federal reserve can keep the yields in check by essentially buying these government-issued bonds. That's what the ECB announced, that's what our fed is doing and will keep doing.
Quote
The Fed is currently buying $120 billion of assets per month -- $80 billion of Treasury securities and $40 billion of mortgage-backed debt -- and has pledged to keep up that pace “until substantial further progress”
I kind of talked about it previously. They HAVE to do this otherwise the natural yields would spike to organic market equilibrium, which who knows what that is. 3%, 4%? Who knows. The only reason why the yields are this low nowadays is because QE infinity spawned by modern monetary theory.
But that (interest rates going up) can't happen to organic levels currently because corporate and governments would simply not be able to service the massive amount of debt they've just put on their balance sheets if rates rise again significantly. You'd have defaults happening as well as a steep economic slowdown.
This post was edited by ofthevoid on Mar 11 2021 02:24pm