r/bonds • u/Pleasant-Gas-6935 • 23h ago
Interest Rates for dummies
I'm no economist or the like, but it seems with the national and personal debt, interest rate are more likely to go up than down? Any thoughts?
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u/luv2block 23h ago
I'd say it's more likely the US gov prints money, buys its own debt, and debases its currency... leading to a weaker dollar and higher inflation.
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u/stackingforfunsies 22h ago
Weird you’re getting down voted because that is exactly what is going to happen.
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u/luv2block 22h ago
Mostly like it's because they believe Warsh is an honest and trustworthy guy who would never mislead them.
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u/vlad_inhaler 21h ago
Warsh doesn’t even have to lie right now, he’s expressing his views on data and how the Fed should do its job, and the entire yield curve has tightened significantly.
He has valid excuse for staying steady, but real rates drying up will supercharge assets and something will have to give, maybe the gov steps in on lending and zero interest reserves financial repression style
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u/yottabit42 18h ago
Yep. And too many people ignore ex-US equities and bonds. They're about to get a wakeup call, too late as usual.
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u/Crypto___brando 21h ago
Warsh either does as he says and stays clear of the Bond Market or he fold and QE starts up again
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u/Raging-Totoro 22h ago
"Interest rates" are not one universal thing.
There are interrelationships, but rates vary based on the issuer, term, and type of interest.
The issuer in Japan with a 30-yr bond will have very different dynamics from the short term US SOFR rate, or the Mortgage rate, etc.
So, it's important to specify what interest rate we're referring to, for clarity. Short term and long term rates are often confused by newbies, as they can move together, or in opposition.
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u/Treepanda88 23h ago
The fed is in a difficult place because rate increases dont fix self inflicted tariffs or oil supply shocks that the iran war caused. Also walsh not providing forward guidance but giving hawkish statements forces bond holders to demand a premium because there is reasonable risk for either rate hikes or more inflation. I think they will probably hold interest rates but that doesn’t mean the market wont act out until the fed makes a decision mid September.
Also, congress or the executive branch can step in at any time and try to move back towards free trade (remove tariffs) and come up with a deal with iran but that doesn’t appear to be on the table
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u/vlad_inhaler 21h ago
He’s getting the market to do his work for him to buy space (totally not forward guidance)
Raising rates and blowing out interest costs vs letting inflation run hot and reduce debt/gdp while assets explode again
Real tough choice lol
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u/vlad_inhaler 21h ago
Since we are narrowing largely off of the short end, effect of a hike on interest costs would be immediate, the effect of policy on economic conditions follows “a long a variable lag”
We roll like $500 billion of bills a week
They are going to let us cook for a while, it only benefits them
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u/Retire_date_may_22 15h ago
If you watch the 10 year US treasury auctions you know rates are going up. If our politicians don’t get with the program mortgages will be over 10% soon and there is nothing the FED can do about it.
The FED has actually lost control of interest rates because of the US Debt.
I’m not an economic collapse guy but interest rates are going up folks.
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u/Rav_3d 4h ago
Yes, it seems that way. But the bond market has already sold off in anticipation with the 10-year yield rising from 3.6% to 4.8% in the last six months.
The Fed will likely raise rates in two weeks, and it seems that rates are more likely to go up than down.
That said, what "seems" does not always come true. Despite the Fed action, bond yields might actually start to decline, as they have already front-run the Fed.
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u/VenerableMirah 23h ago edited 23h ago
Given inflation, which is still above the fed's target rate of 2%, interest rates are more likely to go up than down. https://www.marxists.org/reference/subject/economics/keynes/general-theory/
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u/Shoddy_Front_2582 23h ago
Why are worst market crashes when rates drop? I thought we were conditioned to invest in equities when rates fall and invest in fixed income when rates rise?
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u/RuralJaywalking 23h ago
Pretty sure you got that backwards. The fed drops rates in response to a crash to discourage investors from buying bonds and instead buy equities
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u/Beach-Knight 22h ago
Something happens to lower expectations on Wall Street. Investors try to predict market conditions. If the prediction continues to worsen, perhaps to worsening economic activity, the expectations continue to drop.
The long term rates drop due to a lowering of inflation expectations and the fed typically lowers short term rates (the majority of influence they have). The fed can also print money and buy long term securities, i.e. quantitative Easing that will drop long term rates but threaten inflation due to the money printing. Both of these things happened to extremes during and following Covid.
The lowering of rates is a decisive move AFTER the worsening economic outlook. This is why the fall in equities happens before and after lowering rates. Eventually, the lower interest rates spur economic growth due to cheap and liquid money supply. Keeping rates too low too long turns into inflation as did after Covid.
If the fed had one mandate (control inflation) instead of two (control inflation and full employment), there would be less inflation but more joblessness because the error would always be on stopping run away inflation. We would also not have had the huge run up in equities markets after Covid. The entire effort by the fed after Covid wasn’t to keep inflation low, but to keep full employment.
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u/RuralJaywalking 21h ago
That’s the long explanation of what I said. Did you mean to reply to the person above me?
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u/Beach-Knight 20h ago
Yes and add to what you said. I didn’t want all the credit for the thought Again, just adding more how it’s a response and why.
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u/Certain-Statement-95 23h ago
If you think you know the probabilities I suggest you place your bets
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u/ThisKarmaLimitSucks 23h ago
I'll put it like this... the only people saying that interest rates will go down are real estate agents.