You probably know by now that the US Treasury auctioned four-week bills at a discount of 0.00% earlier this week. The secondary market traded bills at a negative return during the day. This is the first time that investors have accepted absolutely no return.
The new "bubble" is in cash.
9 comments:
Question...why would anybody buy
a note or bill paying zero interest?
Why not just leave it to collect
money market interest?
Look at it another way, why not buy high quality corporate bonds with
double digit yields?
I tell ya, I'm getting really tired of smart asses. What Kumbu is trying to tell you Paulamon is that it's a question of risk. Presumably, US notes and bills are less risky than MM. Whether the perceived risk is accurate or not is only known in retrospect.
Debra,
How is cash the new bubble? Dave
Dear Dave,
A bubble is created when more money than usual flows into an asset.
So much money has gone into cash that the yield doesn't make any sense...as the comments above yours indicate.
Great question! Deb
Deb,
Can you suggest chapter(s) to read from your book that best address this moment in the markets?
Thanks,John
Dear John,
Please read two chapters:
1. commercial paper
2. the spread between the high-yield (junk) bond and the 10-yr. note.
Thanks for asking,
Deb
Didn't intend to come off as a smart ass. Rather, it was to point out that 0% yields are as irrational as the internet and housing bubbles before this cash bubble. I see the arbitrageurs coming in to take the spreads between treasuries and AA rated corp debt. A direct answer would have been better.
Deb, I agree, this is a cash bubble. Folks over at High Frequency economics are ordering copies of the Reich bank's ledgers circa the 1920's. There are too many parallels to miss. Once the economy finely does take off, and if Bernanke contracts the money supply to control the incumbent inflation, a tertiary recession would be sure to ensue as it did when Volker jacked up rates in the late 1970's and early '80's.
I see no possible good outcome. Either rampant inflation or prolonged recession. Do you have any faith?
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