Posted on 12/01/2008 7:06:24 AM PST by TigerLikesRooster
US Treasury 10-yr CDS hits record high
Mon, Dec 1 2008, 11:34 GMT
http://www.afxnews.com
LONDON, Dec 1 (Reuters) - The spread or risk premium on 10-year U.S. Treasury credit default swaps hit a record high on Monday, extending a recent trend as market participants continued to fret about the scale of the government's financial rescue programmes.
Ten-year U.S. Treasury CDS widened to 68.4 basis points from Friday's close of 60 basis points, according to credit data company CMA DataVision.
Five-year Treasury CDS widened to 52.5 basis points from 46 basis points at Friday's close, it said.
(Reporting by Emelia Sithole-Matarise)
(Excerpt) Read more at fxstreet.com ...
Ping!
You know, there’s great value in highly rated, 10-year tax free bonds. Some are paying 100 basis points more than a 10-year T-Note...and it’s tax free if issued in your state of residence(or the several states that still do not have state income taxes).
Take a look if you like.
This is not good news. And, the ten year bond sitting under 2.81% is, like so many things we have seen this year in the markets, utterly unbelievable. Incredible, “can’t believe your eyes” incredible.
Are elected republicans going to use this to stop Obama?
What does this mean in terms of having govt bond funds?
Can you explain why? I didn’t really understand the economic lingo in the article.
I just noticed the writer’s name, Sithole. I’m assuming it’s prounounced like the two words, “sit” and “hole”, and I wonder if her father ever looked at her proudly, at her graduation perhaps, and said loudly.... “What a Sithole!”
That said I made a massive 40 dollars in the stock market last week because I bought GE. I’m Warren Buffet with less capital.
Me too.
Should I be doing something? If so, what?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aIKuL6Qk19bU&refer=home
Yields ‘Next to Nothing’ Lure Funds to Riskier Assets (Update3)
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By Dakin Campbell
Dec. 1 (Bloomberg) — In the best year for Treasuries since 2002, fund managers who only buy government bonds are seeking permission to invest in corporate debt they considered toxic just a month ago.
Treasuries “are yielding next to nothing,” said Robert Millikan, who manages $5 billion at BB&T Asset Management in Raleigh, North Carolina, including the $51 million BB&T Short U.S. Government Fund. “Trying to do something for your shareholders, it’s hard to sit there and buy a bond that yields less than any fees you charge.”
excerpt
It means you’re going to get squat for returns in that goobermint bond fund for the foreseeable future, AND that, for the first time in history after the Civil War, US sovereign debt has a significant risk premium (i.e. a lot of people, evidently, are willing to wager that the US will default on some paper in the future).
What would you specifically like to know, AggieMama? There’s too much in the article to answer everything in less than 10,000 words or so.
Can someone explain this in plain English? I didn’t know the gov held CDSs. I’m sure this is interesting news and would like to understand it. Thanks!
Just a fixed income person asking a question that could effect my financial outcome in the future.
ES
So if we have money in bond mutual funds that hold some gov bonds, we might be better off in a money market fund with a yield of about 2.7%?
“Can you explain why? I didn’t really understand the economic lingo in the article”
The 10-yr CDS (Credit Default Swap) hitting a record high means the market now considers the US at the greatest risk for bankruptcy that it’s ever measured, so the cost of insuring US debt is also the highest its ever been.
The yield on treasury notes is the amount of money you make if you buy one. The US treasury department issues these. Their sale is one of the ways we borrow money to fund what our taxes arent high enough to pay for.
It is super-low right now because they are in high demand, but they are in high demand because even though the government is considered at high risk for default, the US taxpayer is still considered the richest hide to carve some portion of the money out of in an international settlement if we go bust.
When you factor in inflation, you actually lose money when you buy a treasury note, but less money than you’ll lose investing anywhere else right now.
We’re entered deflation, where all asset values go into decline, so there’s no safe harbor to protect your money. Your goal needs to be to invest where you’ll lose the least money.
Three things: 1: I’m not the world’s foremost bond authority, 2: let’s also understand that todays’ rates are “todays’ rates” (meaning...that there is a “tomorrows’ rates”, just like there are today and tomorrow and next month and next year prices in the stock market) and 3: the article is REALLY specifically talking about (when mentioning “CDS spreads” the “cost to insure” Treasury bonds, whereas my comment noted the coupon or yield on the 10-year bond, which is at something like 50-year lows at these levels.
The article is “just” pointing out that the cost to insure Treasury debt is rising, which is mentally dissonant in and of itself, because you’re not supposed to have to insure Tsy debt, are you? It’s guaranteed by the world’s biggest guarantor. It supposedly sits atop the hierarchy of debt instruments one can possibly buy. Of course, now that CDs to $250K are guaranteed, now that agency debt in the hands of the Chinese is guaranteed, now that GE has access to the FDIC, all of these actions expanding the universe of things guaranteed by the ultimate guarantor, the question arises, how much of this stuff can REALLY be guaranteed? Or is it jawboning?
My comment is about the extremely low yield of the 10 year. Now, this yield, whatever it is, can be produced by a mass run to perceived safety: Folks buy bonds like crazy, driving UP the rice, driving DOWN the yield. But the bond market is generally thought of as smarter than the stock market, and this yield can ALSO be thought of as a reflection that the market is anticipating deflation. The Fed and Tsy fear nothing as much as they do deflation. And, it is not pleasant to live through, even though prices get lower as time goes on. But the “today” signs are signs of a very severe deflationary credit-led recession. Assets get cheaper and cheaper, but nobody buys because they believe they will get even cheaper later. But it must be remembered that there is an “after” on these doomsday scenarios.
In this environment, CASH becomes a most valuable investment. Govt debt YOU ALREADY OWN is a GREAT investment, because it is very safe and its yield is not attainable today. Govt debt YOU BUY TODAY is probably NOT a great investment. The yield sucks.
To summarize what MY comment was about: this bond rate forecasts a serious recession.
See post 15.
How can a bond paying 2.8% over 10 years be a good deal when even the phoney manipulated statistic of official inflation is at 4.1%.
It is only because the stock markets and bond markets have been destroyed by the combination of Wall Street fleece artists, Federal Reserve con men, and Treaury Dept. hooligans. But I repeat myself, don’t I. It’s all the same guys, just different job assignments on different watches. (Rubin: Wall St -> Treasury -> Wall St; Geirthner: Fed -> Treasury; Paulson Wall St -> Treasury -> ???)
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