Not as crazy as it sounds. The news keeps coming in that foreigners do not want duration risk in u.s. debt. Look at what happened to Bear Stearns & other failed firms that borrowed too much and did it with short term IOU's.....
http://www.americanbankingnews.com/2009/09/16/foreign-appettite-for-u-s-debt-takes-massive-dip-in-july/
Worries over the impact of ever increasing federal deficits proved to be warranted as the Treasury Department reported Wednesday that foreign demand for long-term U.S. assets tumbled in July compared to June. Net buying of long-term notes and bonds only totaled $15.3 billion, much less than the $90.2 billion in net purchases for June.
July’s results show that foreign investors and governments may be growing weary of the federal budget deficits being run up by the U.S. government. The projected deficit for the fiscal year ending Sept 30 is now in excess of $1.5 trillion. Economists had expected foreign net purchases of U.S. assets to reach about $60 billion for July, well ahead of the actual result.
When including short-term securities, foreigners had net sales of $97.5 billion in July. That compares to just $56.8 billion in June.
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Response by marco_m
almost 17 years ago
Posts: 2481
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what does duration have to do with this article?
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Response by Riversider
almost 17 years ago
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Buy shunning long term debt in favor of short term debt, they are avoiding duration risk...
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Response by marco_m
almost 17 years ago
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how are you defining duration? you realize ur about schooled badly
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Response by Riversider
almost 17 years ago
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Duration is the percent change in a bond's price function with respect to interest rate. Thus the duration is the absolute change with respect to interest rate, divided by the current price. Duration is known in other settings as the λ or Lambda. The absolute change in a bond's price with respect to interest rate (Δ or Delta) is referred to as the dollar duration.
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Response by marco_m
almost 17 years ago
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nice job looking it up and cutting and pasting. Now using that definiteion pls tell me how you conclude from that article that "The news keeps coming in that foreigners do not want duration risk in u.s. debt."
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Response by columbiacounty
almost 17 years ago
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must be a youtube on this .... somewhere.
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Response by aboutready
almost 17 years ago
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i'm amused
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Response by columbiacounty
almost 17 years ago
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youtube must be down. oh no.
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Response by aboutready
almost 17 years ago
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marco, rs has some difficulties with math. this seems to extend to time. what's the diff between a few months, 1 year, 10 years, 30 years?
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Response by Riversider
almost 17 years ago
Posts: 13573
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Cute can clearly see which two are gunning for Statler & Waldorf prize..
Now using that definiteion pls tell me how you conclude from that article that "The news keeps coming in that foreigners do not want duration risk in u.s. debt."
I conclude by avoiding long debt and buying short debt they are protecting themselves from principal loss in long dated treasuries. Or would you argue that 30 year treasury bond has less risk than a T-bill?
graph on debt coming due...
Question is does the u.s. government decide what debt maturities to sell, or do the foreigners decide which maturities to buy. Either way, it's pretty unsettling to see how much of our debt is being financed short term.
avoiding 30 yr =s going commercial paper. right
Intentional hyperbole which should have been obvious
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Response by aboutready
almost 17 years ago
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of course, we expect hyperbole.
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Response by marco_m
almost 17 years ago
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RS..ur focusing on a tree and losing sight of the forest. the point of the article is that foreigners are questioning the US ability to repay debt at all. now you can look at the treasury yield curve today compared to when that article was written and see that foreigners are still buying debt.
duration is a tricky term becuase it seems intuitive that it has only to do with time and length of maturity. but in bond trading, its primary function is rate sensitivity. follwed by the number of years it will take to get ur $$ back given the current price. so when you look at duration on bbg or whereever you will see a couple differnt numbers.
I think you just wanna be carefull when using financial terms. but hey its a free country
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Response by Riversider
almost 17 years ago
Posts: 13573
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Marco, most people assume modified duration, and not macaulley.
Yes, foreigners are questioning our ability to repay and eventually this should show up in higher rates. And a 1% change in rates has a larger impact the farther out you go in the maturity spectrum. For now foreigners must re-invest because there is no place else to go... so they choose shorter term debt.
Appreciate the feedback....really
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Response by Fluter
almost 17 years ago
Posts: 372
Member since: Apr 2009
OK, so somebody please tell me how this might impact US real estate. Thank you.
{Manhattan real estate agent.}
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Response by marco_m
almost 17 years ago
Posts: 2481
Member since: Dec 2008
if foreigners stop buying our debt, rates go from 4 to 20 and the dollare becomes worthless. we respond by not buying any foreign goods and the basically the world economy shuts down. Im not smart enough to know what that would do to RE prices.
RS...what industry do you work in ? I work at a bank.
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Response by Riversider
almost 17 years ago
Posts: 13573
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Rates go up..
Duration risk, but the higher rates act to support the dollar at a new lower level.
Rates should go up, and dollar should decline, but for now they have to invest, the only question is what do they charge us for the privilege.
Disagree that we would respond by not buying foreign goods. More correct expression would be do foreigners Creditors extend the financing for our purchases.
what does duration have to do with this article?
Buy shunning long term debt in favor of short term debt, they are avoiding duration risk...
how are you defining duration? you realize ur about schooled badly
Duration is the percent change in a bond's price function with respect to interest rate. Thus the duration is the absolute change with respect to interest rate, divided by the current price. Duration is known in other settings as the λ or Lambda. The absolute change in a bond's price with respect to interest rate (Δ or Delta) is referred to as the dollar duration.
nice job looking it up and cutting and pasting. Now using that definiteion pls tell me how you conclude from that article that "The news keeps coming in that foreigners do not want duration risk in u.s. debt."
must be a youtube on this .... somewhere.
i'm amused
youtube must be down. oh no.
marco, rs has some difficulties with math. this seems to extend to time. what's the diff between a few months, 1 year, 10 years, 30 years?
Cute can clearly see which two are gunning for Statler & Waldorf prize..
Now using that definiteion pls tell me how you conclude from that article that "The news keeps coming in that foreigners do not want duration risk in u.s. debt."
I conclude by avoiding long debt and buying short debt they are protecting themselves from principal loss in long dated treasuries. Or would you argue that 30 year treasury bond has less risk than a T-bill?
avoiding 30 yr =s going commercial paper. right.
"well....you knew what i meant."
mean what you say and say what you mean.
http://dmarron.files.wordpress.com/2009/08/debt-maturities.jpg
graph on debt coming due...
Question is does the u.s. government decide what debt maturities to sell, or do the foreigners decide which maturities to buy. Either way, it's pretty unsettling to see how much of our debt is being financed short term.
Another graph.
http://blogs.cfr.org/setser/files/2009/07/dependence-treasury-issuance-13.png
avoiding 30 yr =s going commercial paper. right
Intentional hyperbole which should have been obvious
of course, we expect hyperbole.
RS..ur focusing on a tree and losing sight of the forest. the point of the article is that foreigners are questioning the US ability to repay debt at all. now you can look at the treasury yield curve today compared to when that article was written and see that foreigners are still buying debt.
duration is a tricky term becuase it seems intuitive that it has only to do with time and length of maturity. but in bond trading, its primary function is rate sensitivity. follwed by the number of years it will take to get ur $$ back given the current price. so when you look at duration on bbg or whereever you will see a couple differnt numbers.
I think you just wanna be carefull when using financial terms. but hey its a free country
Marco, most people assume modified duration, and not macaulley.
Yes, foreigners are questioning our ability to repay and eventually this should show up in higher rates. And a 1% change in rates has a larger impact the farther out you go in the maturity spectrum. For now foreigners must re-invest because there is no place else to go... so they choose shorter term debt.
Appreciate the feedback....really
OK, so somebody please tell me how this might impact US real estate. Thank you.
{Manhattan real estate agent.}
if foreigners stop buying our debt, rates go from 4 to 20 and the dollare becomes worthless. we respond by not buying any foreign goods and the basically the world economy shuts down. Im not smart enough to know what that would do to RE prices.
RS...what industry do you work in ? I work at a bank.
Rates go up..
Duration risk, but the higher rates act to support the dollar at a new lower level.
Rates should go up, and dollar should decline, but for now they have to invest, the only question is what do they charge us for the privilege.
Disagree that we would respond by not buying foreign goods. More correct expression would be do foreigners Creditors extend the financing for our purchases.