Ok so the key to investing is knowing your required rate of return and the risk you're willing to take to get it.
The safest investments are generally Treasuries (govt bonds).
Of these, the safest over a very long period of time have been US Treasuries, UK Gilts, German Bunds.
The safest investments are generally Treasuries (govt bonds).
Of these, the safest over a very long period of time have been US Treasuries, UK Gilts, German Bunds.
https://twitter.com/motasim/status/1988235675716776320
And a few others such as JGBs and Eidengnossen (Swiss).
Treasury yields (returns available on govt securities fluctuate depending on a number of factors including inflation, fiscal position, currency movements, wars, pandemics etc. This applies to other asset classes as well.
Treasury yields (returns available on govt securities fluctuate depending on a number of factors including inflation, fiscal position, currency movements, wars, pandemics etc. This applies to other asset classes as well.
Investors across the world maintain portfolios of securities. In those portfolios are a mix of assets. Outright currency holdings, Treasuries, gold, real estate, swaps, MBS, equities, money market funds, options, crypto and so on.
The return spectrum for assets generally starts from hard cash, then Treasuries, then money market funds etc. Then it graduates slowly to riskier stuff like commodities and Equities, then Derivatives, then stuff like junk bonds and crypto.
Investors allocate their funds into these portfolio assets according to their risk appetite.
Risk averse investors stay near the start of the spectrum. Middle of the road investors allocate more to the middle part such as equities and commodities. High risk cowboys go for....
Risk averse investors stay near the start of the spectrum. Middle of the road investors allocate more to the middle part such as equities and commodities. High risk cowboys go for....
.... assets which may seem more like bets than investments.
Cash and Treasuries anchor the return of most risk averse and middle of the road type of investors.
They form a base of safe liquid assets which can be quickly and with minimal friction cost be turned into cash.
Treasuries are typically the most liquid non cash investment.
They form a base of safe liquid assets which can be quickly and with minimal friction cost be turned into cash.
Treasuries are typically the most liquid non cash investment.
In times of economic slowdown the key factor is a broad based fall in demand. Which leads to businesses closing and jobs being lost and a general reduction in price levels. This is where investors pull money from risky assets and move it into Treasuries.
As a result Treasuries typically see their yields fall. And all of this is based on expectations that the central bank will ease monetary conditions by either lowering the benchmark interest rate or by pumping money into the system or both.
Typically yields on short date Treasuries like 1y or 2y will fall faster and sometimes even below the prevailing policy rate because investors price in the cuts before the cuts actually happen.
The present scenario is different. Investors haven't moved into Treasuries as fast as they normally do because the inflation picture is a bit muddy. The Fed's stance is not overtly accommodating. The Treasuries yielding above inflation means productivity data is still not weak...
... enough for investors to fully pull out of risk and go into Treasuries.
There's also evidence of very large foreign government holdings of Treasuries being liquidated which adds to supply and keeps yields from falling.
There's also evidence of very large foreign government holdings of Treasuries being liquidated which adds to supply and keeps yields from falling.
Flight to safety used to mean a pretty clear move from EM markets and straight into US 2yr bonds to ride out the uncertainty.
This time around things are murky.
This time around things are murky.
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