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Home > Forums > The Open Forum
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Rates and yields

Author: Iggle (6928 Posts - Joined: Sep 14, 2007)
Posted at 4:33 pm on Sep 11, 2019
View All

The Fed sets the overnight interest rate that is the base of the whole yield curve. The Federal Funds Rate. This is what they have recently dropped and what Trump wants them to drop to zero.

Government bonds (and corporate bonds) have a coupon rate that is set at the time of issue. At the time of issue, the bond’s rate and its yield are essentially equal. So, you might issue a ten year note with a coupon rate of 2.25% and a price of par (100-00). It’s yield to maturity would basically be 2.25% at that time (+/- some minor adjustments related to when it pays its coupons, etc). Over time, the market’s view of economic prospects, etc could cause the price of the note to rise (for example), which would then lower the yield on the note. If the price goes to 101-00, the coupon rate stays the same, and so the yield to maturity drops. This is because the bond will mature at 100-00.

It is fair to ask why people would buy 10 year German Bunds at negative yields. They do because there is really no alternative. Banks won’t accept large deposits at even 0% interest because they have no way to invest those deposits. There is effectively no way for Siemens to just hold cash in a vault. So, they are stuck buying the Bunds. It really is a crazy situation.


Replies to: "Rates and yields"

  • Can you smell 27000? Can you smell what the Trumpster is cooking? [IMAGE] - BaronVonZemo - 11:14am 9/11/19 (36) [View All]
    • I thought we smelled this two months ago. - LehighND - 9:22pm 9/11/19
      • Ooooh, that smell... - TakethetrainKnute - 11:37am 9/12/19
      • Take a heapin' helpin' of seconds! There's lots to go around! [NT] - BaronVonZemo - 10:27pm 9/11/19
    • Dude, stop - Nigel Tufnel - 1:28pm 9/11/19
      • Nigel..... - BaronVonZemo - 2:05pm 9/11/19
        • Might as well while we can. The Dems will have us in rail cars soon. [NT] - NedoftheHill - 2:41pm 9/11/19
    • A Trumpster fire, you say? [NT] - Chris94 - 12:20pm 9/11/19
      • There you go! - BaronVonZemo - 2:05pm 9/11/19
    • Meth? - AlbanyIRISH - 11:37am 9/11/19
      • Yeah much like Obama had and the $18 trillion global debt at negative rates. Do you know what that - PBHangingChad - 11:39am 9/11/19
        • I actually think it went from 10 to 20 trillion with Obama when interest rates were having a much - THEISMANCARR - 9:27am 9/12/19
          • You should probably stop posting about these things. - LehighND - 2:45pm 9/12/19
        • So walk me through this - Mark - 1:57pm 9/11/19
          • The Fed auctions off treasuries to meet our debt requirement. They are sold domestically and - PBHangingChad - 6:08pm 9/11/19
            • That's all well and good, but... [NT] [IMAGE] - NedoftheHill - 6:33pm 9/11/19
          • I'm not an expert, but... - NedoftheHill - 2:21pm 9/11/19
            • Rates and yields - Iggle - 4:33pm 9/11/19
              • Well said [NT] - PBHangingChad - 6:11pm 9/11/19
            • About bubbles being bad...really only if you sell. Look if you hung on in 2000 or 2008 - - BaronVonZemo - 2:24pm 9/11/19
              • Agreed. I was thinking more about US business operations. - NedoftheHill - 2:27pm 9/11/19
    • Trump is cooking nothing. The economy drives itself... unless restrained unnaturally. [NT] - Curly1918 - 11:27am 9/11/19
      • Tax cuts work, baby. Every time. [NT] - BaronVonZemo - 2:07pm 9/11/19
        • So cut them to zero... [NT] - LehighND - 9:26pm 9/11/19
          • Oh, I never said no taxes, but after liberals have control, there is always cut backs to be made. [NT] - BaronVonZemo - 10:28pm 9/11/19
        • How's that deficit looking? Oops. Forgot. Obama gone. [NT] - golfernot - 4:30pm 9/11/19
          • See above for debt analysis. Also slow your swing and pose at the finish to help your golf game. [NT] - THEISMANCARR - 9:30am 9/12/19
          • Oops. Forgot. You don't actually care about the deficit. [NT] - NedoftheHill - 5:27pm 9/11/19
            • I think I do and I think you don't. [NT] - golfernot - 10:22pm 9/11/19
              • Oh, I care about it more than any one else on this board. - NedoftheHill - 10:27pm 9/11/19
                • My issue is that the deficit only mattered to conservatives when Obama was Prez. - golfernot - 12:58pm 9/12/19
                  • And my issue is that the deficit only matters to liberals when the GOP has the presidency. - NedoftheHill - 1:22pm 9/12/19
      • Maybe his tax returns... - TakethetrainKnute - 12:12pm 9/11/19
      • How was it restrained during the mortgage meltdown? All those involved in that now criticize Trump - PBHangingChad - 11:35am 9/11/19
        • Requiring banks to lend to poor folk was a form of economic restraint - Curly1918 - 11:52am 9/11/19
          • That took almost 16 years to totally undo the US economy. - NedoftheHill - 2:42pm 9/11/19
    • That’s not important America is focused on sharpies. Come on stay on the important stuff [NT] - PBHangingChad - 11:25am 9/11/19
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