HONOLULU (HawaiiNewsNow) - On today’s business report, Howard tries to explain the entire bond market.
Uncle Sam constantly refinances his debt by selling bonds – everything from three-month notes to 30-year notes.
The Treasury, like the Lannisters, always pay their debts. But the return is low so investors prefer stocks, except when stocks turn volatile. Then bonds seem like a safe place to park money.
Now, Treasury notes are sold at auction. If everybody wants them, the Treasury gets away with a really low payoff. If nobody wants them, the Treasury ups the interest payback until they do want them. You also get more interest when you let the Treasury keep your money longer.
But sometimes you get a yield curve inversion, where short-term yields are higher. The reason the Dow lost 400 points on Friday was because we got a yield curve inversion for the first time since 2007.