How Do Treasury Bond Interest Rates Work? (Explained)
The foundation of investment markets
Bond markets are like the wizard behind the curtain. When stocks/equities markets are making a move it’s because the bond markets already gave you warning and proceeded with their move before stocks did anything at all.
If you understand this simple fact you can gain an edge over the average investor.
Other bond market lingo…
Bond = debt = credit (think credit card, as in you DON’T have it in your account)
Stock = equity = debit (think debit card, as in you DO own it already)
Coupon rate = the interest rate you receive at maturity or in installments during lending period.
Bond markets control the world…
It is the largest market on earth and it is the “tail that wags the dog.”
The bond market is $119 trillion globally and stock market is $41.8 globally in contrast.
Bond holders get paid out first…
as in they have a senior lien position compared to equity holders in a bankruptcy.
Whether it’s a company or a sovereign nation the bond holders/debt holders will get paid out before people who own stock/equity in the company.
Inverse correlation of prices and rates…
The interest rate increase in bonds corresponds to the price of the bonds going down.
When interest rates are going down, the price of existing bonds go up.
This is simply because when the new bonds are being sold at auction at a lower interest rate it makes more sense for an investor to go into the market and find and existing bond holder with a coupon/interest rate at a higher amount.
When interest rates are increasing on new issuance at auction, the new bonds are therefore more attractive to go to the source and purchase new bonds from the company or the nation.
Instead of going into the existing market where bond holders are sitting with bonds that may contain a lower interest rate.
Where do we go from here?
So when you hear about Russia or China or the Federal Reserve not willing to buy America’s treasury bonds anymore you can now understand why that’s such a big deal.
As people dump the dollar and double back on their promises to buy bonds, that lack of demand drives down prices of new bonds and moves the interest rates upward.
This is why the federal reserve will ultimately capitulate and come back into the market eventually to buy the bonds (raising prices from increased demand) therefore driving down the interest rates (so people can service their debts) because of the massive unrepayable debts we have all accrued.
Remember that is a long-term game. In the short term we may have interest rates move up but in the long term the rates must go down because the United States, and for that matter the entire world, are addicted to low cheap credit and there’s no way around it.
This is purposely confusing so the government and banking cartel can play games with you and your money and silently transfer of wealth through inflation and economic funny business over time without you realizing what’s going on until it’s too late.
The more you study the more you will see the insidiousness of what the elites are doing and destroying currencies through monetary and fiscal manipulation.
Stay strong,
Brandon
Ps. The next post will be about how to see what your true return on investment is to make sure government isn’t blindly cheating you.