This Has Never Happened Before in U.S. History
For the first time ever, the U.S. government has sold a three-month Treasury that pays nothing.
From time to time, the U.S. government holds auctions where it sells bonds to raise money. On Monday, the government held an auction selling three-month Treasuries that yield 0.00%. The auction raised $21 billion.
This is not how things work in a normal economy. Lenders are supposed to be compensated for loaning money.
You may be wondering why anyone would buy a bond that pays nothing. For the most part, it’s because they think they can sell it to someone else at a profit.
As regular readers know, bond yields go down when bond prices go up. So if the price of these bonds rises from current levels, the bonds will have a negative yield.
• Investors are loaning money to governments for almost nothing all around the world...
Worldwide, nearly half of all government bonds yield less than 1% right now. And the number of ultra-low yield government bonds should continue to increase…
In June, Forbes reported that “nearly 90% of the industrialized world economy is presently anchored by zero rates.” If you live in the developed world, there’s a good chance your government has a zero interest rate policy…
Regular readers know the Federal Reserve cut its key rate to zero in 2008. It’s left it there ever since. The European Central Bank (ECB) has also cut its key rate to zero. The Bank of Japan (BOJ) has held its key rate at zero for over a decade.
Many people thought the Fed would finally lift its key rate last month. But the Fed held off because it’s worried the global economy is struggling…and would struggle even more without cheap money.
• Howard Marks says “we don’t have a free market in money”…
Howard Marks is the founder of Oaktree Capital, a global asset management firm that manages roughly $100 billion.
Over the past twenty years, Marks has generated 19%-plus annualized average returns for his clients. Meanwhile, the S&P 500’s annualized average return was just 10%.
In other words, Marks has outperformed the market over the last two decades. When he speaks, we pay attention.
Last week, Marks appeared on CNBC’s Closing Bell. He said:
I believe that the free market is the best allocator of resources, and we don't have a free market in money and I'd like to have one.
Interest rates are the price of money. They help people make smart financial decisions.
If you have an idea for a business that will earn 2%, but it costs 6% to borrow money, you know borrowing to start that business is a bad idea. But with rates near zero, nothing looks like a bad idea. Seven years of zero percent rates have destroyed the signal.
Incredibly low interest rates have led to all sorts of reckless decisions. These days, no business idea is too outrageous to fund…no million-dollar condo sits on the market for long…and no Apple gadget is too expensive for a student with a credit card.
This type of reckless spending is all part of the “Wonderland” economy…where nothing is too expensive if it’s bought on credit.
--THE CASEY DISPATCH
For the first time ever, the U.S. government has sold a three-month Treasury that pays nothing.
From time to time, the U.S. government holds auctions where it sells bonds to raise money. On Monday, the government held an auction selling three-month Treasuries that yield 0.00%. The auction raised $21 billion.
This is not how things work in a normal economy. Lenders are supposed to be compensated for loaning money.
You may be wondering why anyone would buy a bond that pays nothing. For the most part, it’s because they think they can sell it to someone else at a profit.
As regular readers know, bond yields go down when bond prices go up. So if the price of these bonds rises from current levels, the bonds will have a negative yield.
• Investors are loaning money to governments for almost nothing all around the world...
Worldwide, nearly half of all government bonds yield less than 1% right now. And the number of ultra-low yield government bonds should continue to increase…
In June, Forbes reported that “nearly 90% of the industrialized world economy is presently anchored by zero rates.” If you live in the developed world, there’s a good chance your government has a zero interest rate policy…
Regular readers know the Federal Reserve cut its key rate to zero in 2008. It’s left it there ever since. The European Central Bank (ECB) has also cut its key rate to zero. The Bank of Japan (BOJ) has held its key rate at zero for over a decade.
Many people thought the Fed would finally lift its key rate last month. But the Fed held off because it’s worried the global economy is struggling…and would struggle even more without cheap money.
• Howard Marks says “we don’t have a free market in money”…
Howard Marks is the founder of Oaktree Capital, a global asset management firm that manages roughly $100 billion.
Over the past twenty years, Marks has generated 19%-plus annualized average returns for his clients. Meanwhile, the S&P 500’s annualized average return was just 10%.
In other words, Marks has outperformed the market over the last two decades. When he speaks, we pay attention.
Last week, Marks appeared on CNBC’s Closing Bell. He said:
I believe that the free market is the best allocator of resources, and we don't have a free market in money and I'd like to have one.
Interest rates are the price of money. They help people make smart financial decisions.
If you have an idea for a business that will earn 2%, but it costs 6% to borrow money, you know borrowing to start that business is a bad idea. But with rates near zero, nothing looks like a bad idea. Seven years of zero percent rates have destroyed the signal.
Incredibly low interest rates have led to all sorts of reckless decisions. These days, no business idea is too outrageous to fund…no million-dollar condo sits on the market for long…and no Apple gadget is too expensive for a student with a credit card.
This type of reckless spending is all part of the “Wonderland” economy…where nothing is too expensive if it’s bought on credit.
--THE CASEY DISPATCH