1/ If you turned on CNBC last week, you've likely heard a talking head mention Treasury bond yields
before your eyes gloss over from boredom, stick with us
we're going to explain what treasury bonds are, why their yields are going up, and why you should care about them
2/ First, a quick definition of a treasury bond
think of it as a way for the US government to fund itself
when you buy a 10-year Treasury bond, you are the one loaning the government money
3/ Why would someone purchase a treasury bond?
say you have 1 million dollars
on a scale of stuffing-it-under-your-bed to investing it in GameStop
buying a treasury bond is about the safest thing you can do
4/ If you buy a treasury bond with that million you can trust that
1. The government will pay back the million you loaned them at the end of the term of the bond
2. The government will pay you interest (yield) on that loan until the end of the term of the bond
5/ Treasuries, which can mature in as little as 1 year or as long as 30 years, are looked at as a nearly risk-free place to park your money
and the amount of interest that a bond "yields" is used as a benchmark for other investments you can make
6/ So what makes bond yields go up or down?
Supply and demand, just like anything else in a free market
the more traders who want the risk free returns that bonds offer, the higher bond prices go, and vice versa
7/ But here's the most important tweet in this whole thread
as bond prices go UP, bond yields go DOWN
as bond prices go DOWN, bond yields go UP
bond prices and bond yields are inversely correlated
8/ One example of the above point, because it's so important
say you park your million in a Treasury bond that yields 2%
but investors think there's gonna be another Covid flareup that might shut down the economy again
suddenly that risk-free yield is wayyy more desirable
9/ Now, if you wanted to sell the bond, the safety it provides is worth more
since the bond is more desirable, the price will go up and yields will go down
bond yields were super low at the beginning of the pandemic because of how much uncertainty there was in the market
10/ Say it with us:
as bond prices go UP, yields go DOWN
as bond prices go DOWN, yields go UP
11/ There is one last factor in this complicated calculus to contend with: inflation
Inflation essentially means "rising prices"
it’s the reason why people in 1950 paid $0.50 for a loaf of bread while we pay $3.50
12/ Massive economic growth is actually potential kindling for inflation
signs of inflation often show up in a hot job market where wages are rising
plus, throw in some stimulus efforts and we've got a potent inflationary mix on our hands
13/ The way the Fed has dealt with inflation in the past is by raising interest rates
as interest rates are increased, consumers tend to spend less and save more since returns from savings are higher
with less people spending money, the economy slows and inflation decreases
14/ The prospect of raising rates always sends bond prices down because a bond yielding 1.5% is less attractive if putting your money in savings nets you 2%
📸 SEC
15/ To sum it all up, 10-year Treasury bond yields are hitting yearly highs because
1. investors are optimistic that more stimulus + vaccines will lead to rapid economic growth
2. investors are a liiiiittle scared of inflation and a potential hike in interest rates
If you like threads like this, go follow these people. They all tweet about Treasuries on a fairly regular basis
1/ Since the pandmeic hit, it's been hard for the Brew Crew to keep the same level of camaraderie and team spirit that being in the office fosters. We know we're not alone
a quick thread on how we've been coping
2/ Like many, we've turned to fun Zoom events as replacements
We've done Sangria and Secrets with drag queens (thanks @KateNoel_ ), a Halloween costume contest (that @hankstockwell won), as well as two trivia nights
3/ We can't recommend the first two examples enough, but if the Brew does one thing well, it's give away free stuff
1/ Every morning, millions of people around the world wake up, make their coffee, and check a few key numbers—200 points, $1,100 a troy ounce, $40 a barrel. Those numbers provide clues about how the markets are performing each day.
2/ We include these indicators at the top of every Morning Brew newsletter, but you don't need an MBA, PhD, or fleece vest to understand what they are, how they work, and why they matter
3/ Here's everything you need to know about the three main U.S. equities indexes as well as gold, oil prices, and Treasury notes.