Yields Shmields

What do the Treasury yields have to do with me, you say. I have a trouble rubbing two nickels together, never mind worrying about the budget deficit, national debt and bond yields. Well, think again. The increasing debt burden of the U.S. has a direct effect on American families. How you say?

The federal government is increasingly printing money, yes literally printing money and at the same time is auctioning off Treasury notes and bonds at record pace. What does that mean? If you look at what has happened over the last month or so, the 10 year T-note yield has risen from 2.5% to 3.55% (as of today). The investors who are buying those notes are demanding better returns as they are worried about the inflation and the U.S. growing debt. The 10 year note, dum dum dum, is the benchmark rate for mortgages. It costs you money if you are looking to refi or buy another home. One little watched item is that to keep these yields astronomically low is that the Federal Reserve is buying back the old bonds at the same time they are auctioning off new ones. The buying back is somewhat normal but not at the level they are doing it. I think it was on Friday that 10 year yield was in the 3.71% range.

Now for the right hook to the face; China owns an overwhelming majority of those bonds. They are worried about the US and the value of those bonds. There was a press release reporting that our Treasury Secretary told a Chinese audience that there money was safe invested in the US and there was laughter in the audience. Scary. China has a vested interest in how well we do but they are becoming quite savvy and there could be an unintended shift to another country's debt. The question is who? At this point, no one knows that answer. Next time you scoff about yields, think again.

Stay tuned. My next blog will go into inflation and how putting money under your mattress is the dumbest thing you can do.