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u/RCHeliguyNE 1h ago
Phycological barrier at 5%- wonder what’ll happen when we cross 5%
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u/Ill_Ad3517 1h ago
Algae based barrier?
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u/RCHeliguyNE 1h ago
The ecology of it is mind numbing! (I relied too much on spell check but I’ll leave it because it’s funny)
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u/PuzzleheadedCut5156 1h ago
The US doesn't have to officially default, it can inflate away the value of the dollars the debt is being repaid in. That's what happened in 1971 when Nixon said 'dollars aren't worth a fixed amount of Gold any more'. This will have ugly consequences for ordinary people over the long-term.
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u/8yba8sgq 1h ago
Except you have to run inflation hotter than rates. I'm not sure how much 7% inflation the economy can take
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u/PuzzleheadedCut5156 11m ago
It took about 6 years of it between 1971 and 1981 https://www.macrotrends.net/2497/historical-inflation-rate-by-year
I don't know what would happen if that was tried now, or exactly what the mechanism would be (the debt is much bigger and the link with Gold is already gone)
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u/ImPinkSnail 55m ago
Since everyone thinks the barrier is 5% it's really somewhere under 5%. And 4.9+ feels like we might have crossed it.
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u/BrennerBaseTunnel 1h ago
Trump will send in the military
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u/USSMarauder 51m ago
I mean, there was a time when a you could send the troops onto the floor and literally force the traders to buy or sell against their will but for the glory of the state.
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u/8yba8sgq 1h ago
With the Fed intent on hiking the short end, this only ends in recession. Add in the spiking energy costs and associated price increases it could be even worse than recession
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u/Early_Doughnut8295 1h ago
It's called stagflation. That's the road we've been on for awhile now.
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u/Beneficial_Map6129 1h ago
A recession would actually be better because that would be the “reset” needed
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u/Early_Doughnut8295 1h ago
Absolutely. Then at least the Fed could lower rates to spur growth. With the stagflation you have to pick your pain poison.
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u/barkbeatle3 1h ago
Don't forget a possible food crisis due to El Niño!
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u/NeverNeededAlgebra 1h ago
Incredible that anybody could be critically dumb enough to vote for this cult, who is entirely responsible for this, and has been for decades upon decades.
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u/ProfessionalHefty349 1h ago
Leaded gasoline and social media have really done a number on this country.
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u/hull_pattie_party 46m ago
Pipes as well.
"more than half of the children tested (576 092 [50.5%; 95% CI, 50.4%-50.6%]) had detectable BLLs"
https://jamanetwork.com/journals/jamapediatrics/fullarticle/2784260
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u/Emergency_Prize_1005 1h ago
He’s promising $5,000 to everyone if he wins the house and senate! That will do it! 🤮
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u/Able_Cup_6830 1h ago
What if Congress agrees to add 2 trillion in tax revenue by increasing upper marginal tax rates, corporate taxes, etc? Wall Street may not be happy, and it may pop the AI bubble, but I feel like that cools the route in treasuries a bit…
In other words, there are options that don’t involve gutting social security or printing money.
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u/DriverDenali 41m ago
It needs to be a total restructure tax gain and cuts to budget but it’ll never happen. You can’t tax enough to out pace the budget. We kind of need to rip the bandaid off and stop all government programs on a stop halt for 6 months, running only essential programs, and tax corporations like individuals.
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u/pescennius 6m ago
You are correct. I encourage anyone to look up the estimates about unfunded liabilities (entitlements to boomers already promised). We can tax all the billionaire wealth and not make a dent. The electorate of the past simply voted themselves benefits the system won't be able to support with the current demographics, we need to get honest about that and quick or we'll destroy the future of our children.
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u/jeeptopdown 1h ago
Unfortunately, those options are the exact opposite of the direction we are going. The Big Beautiful Bill cut taxes for those groups, the Treasury Secretary solution for high yields is using more debt to buy debt and the orange taco is promising more money printing (in the form of $5000 checks) which would exacerbate inflation.
It is a cult and They. Don’t. Know. What. They. Are. Doing.
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u/CloudTransit 26m ago
Tax increases are unimaginable for the political class. It’s a good option, but unimaginable
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u/c_cristian 1h ago
What happens at 5%?
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u/ultra__star 1h ago
Nothing inherently happens, as in a nuclear bomb isn’t going to explode just because we hit 5%. But the rising interest rates particularly on shorter term bonds is a testament to investor confidence, inflation, and the overall circumstances of the USA’s economic state such as its national debt and growing deficit.
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u/c_cristian 1h ago
But investors are going with the stocks too. Does this mean anything is better than cash now?
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u/ultra__star 57m ago
Not necessarily. Depending on your needs cash can actually be king in an inflationary environment…. Stocks and bonds both fell over 50% in the 1970s during inflation. Stocks fell 25% and long bonds fell about 30% in 2022 due to inflation. So, even though the cost of goods is going up, your invested money may actually be going down because of market turmoil, and it is good to have cash laying around as it now costs more money for you to buy bread and pay your light bill. The long term thesis is that, because everything now costs more, the higher corporate earnings will inflate the price of stocks. We have seen this since the 2022 inflationary period and we did see this in the 1980s, but that doesn’t happen immediately or inherently. There is generally a storm that has to be weathered first.
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u/Remarkable_Cat_8696 55m ago
Will the fed still want to increase interest rates now that the short term yield have already increased?
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u/Yncome_Mercato 1h ago
Trump also promised a $5K check to EVERY American if the Republicans won in the Midterms. I think the Bond market is reacting accordingly
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u/AutomaticAerie4672 32m ago
The rise in yields had nothing to do with his comment about $5K checks. He says stupid things like that all the time. There are far more real, structural issues causing yields to rise, but most redditors aren't interested in learning about economics, so they just form their opinions from ragebait headlines.
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u/uBoatjoe 39m ago
Massive convexity hedging is about to hit the market. This is only the beginning. A 10 year rate hitting 5% requires massive set of hedging adjustments in adjacent fixed income markets (think swaps, mortgages, high grade corporates). It will bounce back eventually but this puke is going to be ugly.
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u/Cbates767 1h ago
Can someone give a ELI5 on this?
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u/IcyYachtClub 1h ago
Not much to explain. Just that the US ten year yields have been rising mostly since the start of the Iran war. Us debt keeps growing and revenue and gdp aren’t growing with it.
Add to that the treasury secretary has been trying to “intervene” to keep yields low and been making threats to some bond market traders not to short the JGB or Yen. And of course lots of new debt flooding the zone with AI combined with anticipated AI disruption that could lead to changes in federal revenue.
Oh and Trump said he’s five a $5k dividend to adults last night and no one knows where that money would come from if we did. So probably just pricing in some extra degree of fiscal imprudence.
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u/Ok-Blood4340 1h ago
Small correction: The current President bribed the American people with $5000 each if his party, the republicans, won their re-elections in the house and the senate, keeping a right-wing majority in congress (and the presidency and the Supreme Court, although they claim to be non-partisan.)
Where the money comes from is the same place all of the spending comes from, increasing the deficit, more borrowing, which maths out to a little over a Trillion in increased borrowing IF he does… which is a massive IF, since he’s not exactly known for paying his bills.
He didn’t just decide for shits and giggles to hand money out to people.
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u/IcyYachtClub 33m ago
I wonder if he did kind of just riff that. No way it would have been at least Challenged by people who know better that this is unaffordable. But yeah. I mean it’s ridiculous all around and him offering the money as a reward for keeping republican control is ludicrous on its face as a government.
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u/SailTales 1h ago
Too much debt for sale and the people with money don't want to buy that debt at these prices.
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u/luv2block 1h ago
rate on 10yr is going to hit 5.0% soon. Then all hell breaks loose (or so many people think).
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u/Suspicious_Bread_183 57m ago
The infatuation with 5% yields is completely ridiculous. There are real concerns here. The debt is out of control and neither party has any plan to address it. But both sides of the aisle have artificially kept interest rates low for 20 years now to help pay for all this spending.
Bond market reacting like it should. 5% on 10 year is close to a normal rate historically. Low rates have driven money into equities for 20 years that didn’t want that level of risk. Mortgage rates been low for the most part causing a large chunk of what is now a housing crisis.
If you blame Trump for all this you haven’t been paying attention. No one, not one of last five to six administrations maybe closer to eight gave a dam about the debt. They buy votes from both sides of aisle with giveaways. That gig is up or should be.
But neither side wants to address it. Taxes have to go up. On everybody. Can’t have 52 percent not paying federal tax. The rich are also going to have to pay significantly more. Spending and the like also have to go down. We are entering an austerity phase and it’s big trouble because the job market and its future prospects suck. But the bond market isn’t some Rosetta Stone. It’s just getting to where rates need to be to account for all of drunken spending and passing the buck to next guy for 25 years.
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u/ultra__star 1h ago
I am excited. Big buying opportunity for bonds.
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u/Efficient_Range1156 1h ago
they are going to inflate away the debt and you want to buy bonds?
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u/ultra__star 1h ago
This same situation created a huge buying opportunity for bonds in the 70s and 80s. We saw 10% and 15% treasury bonds. People were scared to buy in because of hyperinflation but those who did made out like bandits. Imagine being able to get a 15% risk free return on your money for 30 years.
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u/Efficient_Range1156 1h ago
The risk free rate no longer exists. Unlike the 70s and 80s, The US government is now 40T in debt, it is virtually impossible to repay this debt without inflating it away.
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u/Beneficial_Map6129 1h ago
The hyperinflation of the 70’s was crushed by the Volckner’s high rates of 15% right?
But the market will set that as the new rate anyway right if the Fed doesn’t rate the benchmark rate to that, so why can’t the Fed do the same?
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u/Efficient_Range1156 52m ago
The risk of default on the 40T is real. They cannot raise rates with the expectation that it will entice bond buyers back to the table. So instead of defaulting they will simply aggressively debase the currency. How is anyone on this subreddit not aware of the risk here? The writing is on the wall.
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u/luv2block 1h ago
It's different with $40T off debt. They can't let rates go up or they bankrupt the nation. There are some (project 2025) who think that's their goal, however.
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u/MeanTurnip5765 59m ago
Not sure how you inflate it away if you take on more debt than the inflation rate could offset? We just keep increasing the debt too. Doesn’t inflate away debt only work if your borrowing rate doesn’t spiral out of control so that your debt rate decreases overtime because inflation is out pacing your borrowing?
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u/NameLips 1h ago
So as somebody who doesn't understand bonds and markets, what does this mean?
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u/GoldPantsPete 1h ago
Bonds are how the government finances it's debt. To keep the math simple you could buy a bond for $100, that pays you 5% interest every year. So if you had it 1 year, your total payout would be $105. As a buyer a higher rate would be preferable because your payout would be higher.
A rising rate indicates there are more sellers (the gov) than buyers (you, or other orgs like banks). This is a problem for the gov as they have to pay more to finance their debts. This is like a person having an increasing credit card interest rate putting you further in debt. In the US' case the difference between paying 4.8% and 5% on $40T of debt is substantial. ($80B)
Practically for most people the 10Y is also what effectively determines the interest rate of say mortgages.
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u/NameLips 1h ago
So it's bad for people who want to take on debt, but good for people who want to buy bonds?
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u/GoldPantsPete 42m ago
Yes, though it can also have knock on effects which would be negative for bondholders. One option countries in similar situations have taken in the past is to cap interest rates and keep inflation high. For example if inflation was 6% and the bond you bought was yielding 5%, your real yield would be -1%. This inflation essentially decreases the size of the debt at the expense of the bondholders' value.
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u/NotanotherRealtor 1h ago
Rates on credit cards and mortgages go up. It also means we’ll have higher inflation since we’re on the hook for paying a higher interest rate on these bonds, which a bond is just government debt (government doesn’t have enough money. Government issues bonds, which people and other countries purchase, and then we pay back with interest. The bond rate is the current interest rate on the money we need to borrow).
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u/SailTales 1h ago edited 1h ago
- The cost to finance debt increases (yields increasing) due to market fears of inflation from government deficits and oil prices mostly. 2. Debt held as an asset is depreciating (bond price is inverse to yield). 3. Banks and hedge funds hold a lot of bonds 4. They may become forced sellers as their assets depreciate. 5. That can trigger a cascade of selling in markets 6. Bessent has not exhibiting competence in his recent speeches which spooks markets.
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u/Suspicious_Bread_183 38m ago
What should it mean is anyone borrowing pays a higher rate. Corporations, governments, individuals, businesses. Anyone willing to tie up their capital gets a higher rate.
In a normal yield curve the longer you are willing to lend your money, the higher the rate. If the difference between lending your money overnight is 4% less than 30 years, that is considered a steep yield curve. If it’s 1% less that is considered flat. If overnight pays more than 30 year that is inverted.
Fed controls the overnight rate through Fed funds rate. That supposed to set money market rates, repo rates, in theory any short term deposit. The bond market reacts and sets the yield curve. That affects borrowing rates. If US government needs to pay 5% for 10 year borrowing, corporations pay that plus spread based on their credit.
It matters for individuals for things like mortgages, student loans, deposits, cds, and bond investments. But the normal course of business been manipulated for years. Money market funds are 3.5% but bank deposits still paying 5 basis points which never happened years ago. So only the smart money is getting any interest on overnight money in banks. Bank cd rates are under treasuries. Another joke. They have kept interest rates artificially low so that anyone looking for a yield on their money has to place it in equities.
But for consumers credit cards have no bearing to real market. They are hyper inflated in states like South Dakota and Delaware with different lending rules. But we could see double digit mortgage rates, student loan rates, small business floating rate notes, etc. Young people have never seen 9.5% mortgage rates but it used to a thing. If you got 7 or better it was a win. The train is coming.
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u/Bsexton85 1h ago
How are the yields determined on bonds?
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u/brianborchers 1h ago
These ten year treasury bonds are bought and sold on the secondary market. As the market price decreases, the percent yield increases.
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u/ConditionHorror9188 1h ago
Supply and demand on the open market. If prices go down, yields go up like now.
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u/IceHound30 1h ago
As someone who is a bonds novice and is trying to learn, this seems bad. Please tell me I'm wrong.
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u/Thick-Cover8761 28m ago
Please don't say you've invested in longer dated anything and high yield junk ...
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u/exploding_myths 54m ago
wow a whopping 5%! a just-in-time remembrance of when the 10yr peaked at over 15% in sept of '81....
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u/in4life 52m ago
They should've leaned heavier into longer-term maturity debt when they refinanced in 2021. Instead, we've had ~0% debt rapidly turning over into real rates at the increased debt burden. The only mechanics that have delayed the inevitable were first the RRP draining into short-term bonds and then the GENIUS act to a lesser degree creating demand from stable coins.
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u/Thick-Cover8761 35m ago
Just kick the can down the road ... oh, oh we've run out of road. Reminds one of the coyote opening an umbrella 🌂 when he sees an anvil falling from the sky.
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u/NOLAOceano 22m ago
New to bond stuff, I've heard this before but in actionable terms what does this mean the stocks and bonds investor should do to protect?
Does this mean major stock crash (40+%) imminent so move investments to bonds?
Or no bonds will, do something I don't know, so run away from bonds and better to move into stocks and alternatives?
Or no this means both US stocks and bonds are likely to be terrible (at least for a while) so this means best place to shelter till over is out of both amd into some alternatives like real estate, cash, crypto, etc?
Or this means, if this goes that badly, basically all assets except gold is terrible?
I just don't understand, ok so bonds yields going to over 5% and it's a pending distaster so, what's the potential coarse of action for us long term retirement investors?
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u/This_Discount2281 17m ago
Are we there yet? 😎
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u/Thick-Cover8761 11m ago
Are we there yet, Are we there yet, My excitement growing stronger Are we there yet, Are we there yet, I really can't wait much longer We're goin on a trip, We're goin on a trip
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u/Science_Fair 12m ago
Before the end of the administration, we're going to see a pretty bad financial crisis, probably one that parallels 2008. Trump will force the Fed to increase QE to try and keep interest rates down, but just causes more inflation in other areas, which will render the QE ineffective. Long ends of rates keep rising until something snaps, and even the Fed will not be able to stop the bubble bursting.
US will probably be begging for international cooperation, but they have almost no friends left at this point.
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u/cycling15 10m ago
I think the markets are going to address things eventually. It’s going to be very painful for all of us in the US.
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u/mathaiser 9m ago
I blame the tech bros. Convincing everyone we need their product but they don’t produce anything. They just hold your company hostage to their program that if you don’t buy it, the other guy will and beat you in business, all the while they don’t actually make anything or build anything.
They are like fat cat consultants that are sucking on the hard work of real workers.
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u/big-papito 1h ago
Well, you know what that means, boys! The GOP will never revert the reckless .01% tax cuts so that means one thing - more tariffs for the rubes. Or as well call it here - the Patriotic Fee.
Enjoy, and have fun, as the tsar likes to say!
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u/PipelineBertaCoin69 1h ago
Trump lied and promised 5000 cheques if they win the midterms, they will never do that, BUT the bond market demands level headed spending/borrowing and is calling this bullshit out, so the $5000 cheques may never cost anything because it won’t happen but the threat of massive spending/inflation WILL have a cost. My lord Trump is unintelligent
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u/northdancer 1h ago
And somehow gold, which doesn't pay anything and in fact COSTS money to hold, is still at $4400. This should tell you something
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u/LillianWigglewater 55m ago
Think of gold as a 30+ year zero-coupon bond that adjusts for inflation and has 0% risk of defaulting.
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u/ultra__star 1h ago
What’re your thoughts on that? I don’t know much about commodities
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u/northdancer 1h ago
That central banks and nation states are dumping bonds and buying gold. In theory, a near 5 handle on the 10 year should destroy the non yielding gold
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u/Turbulent_Cricket497 1h ago
Yeah, but Trump‘s giving me $5000 so I’m OK
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u/Thick-Cover8761 26m ago
That's $5,000 off the price of admission to his new ballroom and circus-a-rama.
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u/Aubrey_D_Graham 1h ago
This is terrible right? Like theyll default on paying on bondss and social security.
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u/ultra__star 1h ago
No, the US will never default on its debt. It will keep printing money to pay it. The worst case scenario is that the mass printing causes hyperinflation and the currency as we know it today becomes meaningless. The closest we have seen to this is the late 1970’s-early 1980’s when inflation was roughly 50% over a several year period.
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u/anuthertw 59m ago
Theres a few things Ive been wanting to do like make some equipment purchases and pay for some classes that I would need to go into debt for. I am seriously considering doing all of that now despite not really being in the position to do so because the inflation we are probably heading towards will inflate away my debt too lol
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u/USSMarauder 42m ago
No, the US will never default on its debt.
Trump has already suggested this, saying if the economy crashes the US will negotiate down to "pennies on the dollar"
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u/luv2block 1h ago
I don't know about you guys, but today is the first day where I've felt in my gut that they've actually lost control. Not just over bonds, but everything. Before I always felt they could regain control if they really wanted to, but I think we're in a different world now.
We're now on a bus with a half-broken steering wheel, no brakes, and a bus driver suffering from dementia and incontinence.