Investors are paying Treasury to loan it money. Super weird.

[Cicada]

Mar 3 2020 the inflation adjusted yield on the 10 year US Treasury bond is minus .43% per year. Investors are loaning the US government money expecting to get back less, in purchasing power, than they are lending. We have a precise way to measure expected inflation. Some US bonds throw in a kicker for actual past inflation when they mature. Others do not add money for inflation. By comparing the price for the two different types of bonds we can calculate exactly how much inflation the investors expect. Compare the payments of a non adjusted bond with expected inflation and we get the inflation adjusted yield. Right now it is negative. Investors loan the US govt $100,000 and expect to get back, after ten years, about $95,000, in buying power. That means investors think there are no ways to make a profit with safety. The smart money seems to think our economy is fucked, at least in the next ten years.

[BigmanPigman]

1. What were the long and short term factors that

caused this to happen? I read that this hasn't happened since the 1920s, is that true?

[Shemp Howard]

2. It might be a capital gains play.

Let’s say that a certain bond costs $100 and pays 1% interest. Is that a good buy when that bond pays less than the rate of inflation? It might be if the Federal Reserve continues to lower rates. Then new $100 bonds would be paying less than 1%.

That makes that older bond more valuable. You might be able to sell it for $105, thus making a $5 profit.

And now it’s time for a true Groucho Marx story. Groucho once visited the New York stock exchange. A trader asked him what stocks he owned. Groucho said that he don’t own stocks, he owned bonds. The trader laughed and said that bonds won’t make you rich.

“They will if you have enough of them”, Groucho replied.

[Cicada]

5. Now it's time for a true Lucky Luciano story

Lucky also visited the floor of the NY stock exchange, shortly before his scheduled deportation back to Italy. He came out and addressed the press: “Gentlemen, I joined da wrong mob.”

[muriel_volestrangler]

3. When that's inflation-adjusted, it's not that surprising, it just shows a poor economic outlook

As you say, "That means investors think there are no ways to make a profit with safety."

[Cicada]

4. For ten years?

Shouldn’t we worry?

[muriel_volestrangler]

6. Oh, sure, worry - but I don't think it's "super weird" (nt)