A spike in 10-year Treasury yields could trigger a financial crisis to rival the Great Depression

Discussion in 'Wall St. News' started by Altavest_Erik, Sep 17, 2018.

  1. MarkBrown

    MarkBrown

    buy signal!
     
    zdreg likes this.
  2. zdreg

    zdreg

    it is coming. the question is will interest rates drop first and bill gross becomes a bond market bull or do we have stagflation followed by hyperinflation and high interest when the Fed panics.
     
  3. zdreg

    zdreg

    more signs: from bloomberg
    • Cboe SKEW Index near all-time high underscores hedging demand

    • Elevated level could also reflect lack of demand for calls
     
  4. R1234

    R1234

    Currently the government pays about $300 billion per year in interest on debt.

    Heaven help us if there is a rate spike. It won't be a case of hyperinflation or stagflation - it will be an all out default/insolvency situation.
     
  5. Sig

    Sig

    To be fair, the average maturity of U.S. debt is something like 70 months and an interest rate spike only impacts new debt or roll-over debt, not the outstanding debt. So if it indeed "spikes", which would be a sharp up followed by a sharp down back to something like current levels it would have minimal impact on that $300 billion per year number since it would only impact new debt issued during the spike. If it went up and stayed up, it would certainly have a greater impact, although again arguably that would indicate an inflationary period which has the overall impact of reducing real debt. And it would take 70 months to be fully felt. And that's before we even start considering that 30% of the debt is intergovernmental so higher interest just means more interest goes to things like the social security trust fund. Not a simplistic issue that can be reduced to a single number.
     
    777 and eurusdzn like this.
  6. zdreg

    zdreg

    Life goes on even if you are technically insolvent or in default.
     
  7. jasonc

    jasonc

    I cant imagine a situation where the USA ever defaults like that, look at Japan the central bank just prints and purchases the entire market. This is by no means a healthy situation but politically the easiest which tends to be what is done.
     
    freedinner likes this.
  8. I agree. What have central banks learned from the financial crisis? That "unconventional policy" a.k.a. QE "works", and apparently had less downside than experts were fearing.

    Translation: What used to be unconventional has become part of the normal repertoire, and will be applied quicker and with less thinking than in the past.

    Spike in rates -> emergency FOMC meeting by phone -> QE
    Chinese selling their treasury holdings -> QE i.e. paying them with paper
     
  9. zdreg

    zdreg

    extrapolating from one example to a general rule is an error to logic. countries will pay a high price for such foolishness. think venezuela, argentina. dont think the economic malaise of these counties, product scarcity,high inflation and low productivity cannot come to europe or america.
     
    #10     Sep 18, 2018