Not at all, that’s incorrect. Owning fiat currency reserves as a base is a mark to model exercise. It’s been demonstrated over and over in Latin America, Africa, SE Asia and even russia when they devalued the ruble in 1998 (around the same time as the SE Asia crisis and Long Term Capital Mgt implosion that ultimately led to the lack of interest by peer firms in bailing out Bear Stearns 10yrs later).a fan wrote: ↑Sat Jun 08, 2019 11:42 pmYou're assuming China is looking to dump the bonds they're holding.Farfromgeneva wrote: ↑Sat Jun 08, 2019 11:19 pm They can’t. Forgive the term but it’s a Mexican standoff as long as the dollar is the worlds currency reserve and the US Treasury Bond curve continues to represent the risk free rate of borrowing (all credit curves are built off the US Bond curve, and it’s T-Bills, notes and long bonds, savings bonds, like EE are anachronistic, retail instruments, not held by sovereign entities).
Price and yield have an inverse relationship, somewhat linear when holding for other considerations. So if China stops buying and the US has to borrow at 6%, instead of 3% for 30yrs now because a large buyer sat the auction out, the price of the 30yr bonds China bought last month (setting aside the on/off the run liquidity premium for new issuance) and worth, rough, back of the napkin math, 91 cents on the dollar. So, $10Bn of bonds bought last month are now worth $9.1Bn, $900mm loss. That sounds like a situation where some mid management finance person in the party is disappearing to a place where your whole body gets pierced
If they sit on the bonds to their maturity, they get their full yield. It's the whole point to the instrument.
Or at least is used to be, before the 1%ers decided they needed to pull in 20%+ a year on their investments or life was no longer worth living.
In fact your argument of “the whole point of the instrument” is off. If the market yield is higher and you own something with a lower yield your losing money. You could dump the old ones and buy the new ones w the higher coupons and make more money if that were true, except others won’t want your sh**y bonds that pay less unless they buy them at a discount. This is kiddie math here.
The whole point of the instrument is far beyond receiving a coupon and principal back when discussing sovereign debt. Or how about this, who the heck would ever own the 100yr corporate IBM bonds they successfully issued not all that long ago? China would be directly hurting their net worth, and there’d be a one time massive reset to the trade deficit to adjust for this accounting change. Money, like governments, is all mark to model. It’s based on the stability and freedom of a country.
I don’t get why you want to just argue every point with everyone here. I don’t like our president and worked in NYC in the CMBS and for a CRE CDO fund in NYC for a number of years, am familiar with the business side of the guy more than most (want to blame somebody for Trump, check out Andy beal from TX who was Trumps last domestic lifeline before he had to go overseas and get money under whatever rock it could be found). I’ve also been on the macro side of things and traded or structured every type of bond imaginable at some point. This is all
Correct.
What your 1% and 20% comment seems to suggest is a vitriol that supersedes a willingness to actually believe or listen to someone else who has direct domain knowledge. I don’t care, but it just makes your positions increasingly charicature-like.
You know what I borrowed $80k for in my m 20s and worked literally 80-100hr weeks for a number of years for? To be a 1% person? No, to be able to have the resources to provide a better life for my kids than my parents. And while I’ve gone off the deep end personally and live in pharmaceutical corridor now I’ve managed to accomplish that while my generation (40, somewhere between X & millennials,I wasn’t really the audience for reality bites) is staring at being the first in a while to not have loved better than a prior one from a wealth perspective. Seems like you’d accuse me of being a 1% because of the position I would take. Unlike folks, many who went to my college, who were born on 3rd and thought they hit a triple.