That is what I am hearing on the financial news, but I don’t understand it. If the Feds issue $700 billion worth of treasury bonds for this bailout, won’t their value tank? So why should I buy them now?
Back in the Clinton administration, people were talking how there wouldn’t BE Treasury Bonds by now.
Treasury bonds offer a fixed rate, pay interest every six months, and can’t be defaulted on (unless the whole U.S. economy is shot, at which time no investment will be worth anything).
Their value can’t tank. That’s the whole point of treasury bonds.
What EM says. If the Treasury defaults, it would quite literally end investor confidence in US Government investment vehicles, which means no more foreign borrowing, which essentially means the end of the US economy as we know it.
In other words, if Treasury bonds tank (they can’t lose value, only either be valid or defaulted on), just about every other investment you could possibly make (except gold, maybe) would be worthless too.
But don’t the laws of supply and demand work for Treasury Bonds? If there are $700B more of them, won’t the supply go up, and price come down?
Anyone remember the great Treasury Bond bubble of 2009? Man, the fallout was rough.
Yes, but the variable part is the interest rate. If they are trying to sell more bonds than the market is willing to take then they have to raise interest rates which makes the bonds more attractive (i.e. the Treasury has to pay a higher price for the credit they are buying.)