Treasuries Are At 4%

I got a Wall Street Journal Market Alert e-mail today. It said the interest rate for 10 year Treasuries hit 4% for the first time since June. So (yawn) what’s all the fuss? The 10 year Treasury rate is the benchmark for U.S. consumer and corporate borrowing. It means higher rates are coming for credit cards, mortgages, car loans, and other consumer and corporate borrowing.

Treasury Prices Going Down

The 10 year Treasuries going up and hitting 4% means the prices of Treasuries are going down. So if you are holding any Treasuries, the sale price they will go for in the bond market, in the future, has gone down. If you hold any 10 year Treasuries in your portfolio, your portfolio has taken a performance hit. Bond prices and bond interest have an inverse relationship. This means when rates go up, the prices go down. When rates go down, the bond prices go up.

What Are US Treasuries?

You probably already know about US Treasuries. These financial instruments, also called bonds, are what Washington sold to American and foreign investors and what the elected politicians in Washington used to pay for the excesses from 2001 – 2008. They used the proceeds of the bond sales to pay for the fix up of the terrorist attacks of 9/11/2001 in New York and Washington DC, the fix up for the aftermath of Hurricane Katrina, the Iraq war, and you name it. You’ll remember the last President never raised taxes to pay for any of these things. Wasn’t he a good guy?

Where Did The Money Come From?

So where did all the money come from? What the elected politicians in Washington from 2001 – 2008 did, was to raid the surplus sitting in the government bank account during the Clinton years AND they stole the Social Security surplus set aside to fund your retirement and your kids retirement for many years. They used the government surplus and the Social Security surplus to fund wars, hurricane and terrorist attack relief and payoffs. They also sold billions of dollars in Treasury bonds.

The American Payoff

Payoffs? Yup! Maybe you remember each American taxpayer got a $1200 check from the government back in the early nineties. Where did the money come from? It was sitting in the government bank account and the elected politicians in Washington thought everyone should have a pay day so they gave it away. Every taxpayer, single and married got a check for $1200. My wife and I each got a US government check for $1200 – $2400 total for doing nothing.

The last president gave away your Social Security surplus; and you are wondering if you will get any of the social security money when you retire? What do you think?

Getting Back To Treasuries

Let’s get back to Treasuries. Right now, we’re in danger of losing our best customers who pay for all those Treasuries the US uses to pay for the country’s excessive spending. China and Japan have already started scaling back their Treasury purchases – at the worst possible time. In February, the 30-year Treasury auction was so bad the Federal Reserve had to dive in to the market and buy up the long-dated Treasuries that didn’t sell.

In short, Washington needs Treasury buyers. So they raised the rate on Treasuries to 4% to attract more buyers. If Japan and China are cutting back, where are the buyers going to come from? I think that the guys in Washington are going to be looking to you… and the cash in your retirement plan to buy up those unwanted Treasuries. Personally I think the government will make you buy Treasuries for your retirement account in the next ten years – sometime in the next decade, for sure. This is NOT happening yet. But I think the day is coming.

For Taking Early Retirement (TER), I hope you are enjoying a great retirement or are close to that day!

Jeremiah John

If you enjoyed this post, then make sure you subscribe to my RSS feed.

If you need more information on RSS feeds, see my post at: my RSS feed.