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MD
Monday Dayton
@mondaydayton · Jul 31

Banda, is there an economist or someone who understands government bonds better? 😊

I'm just browsing through the news from around the world and I came across a report on Bloomberg that the US Treasury is set to begin a ramp-up in issuing longer-term securities this week that will likely stretch into next year, forced by a rapidly deteriorating budget deficit and soaring interest rates. These are long-term government bonds worth up to $102 billion. While this is down from the record levels reached during the Covid-19 crisis, it is well above pre-pandemic levels.

That's a large amount of money it seems to me, and the question is, as silly as it may be, can this have any effect on the stock market? I'm not at all familiar with bonds. 🤦‍♂️

CB
Clifford Barclay @cliffordbarclay Aug 1

Theoretically it will increase the money supply, and boost economic growth, it's a counter to raising rates in my opinion, and the effect to the stock market could be a + to growth. I don't consider the drain of funds from stocks to bonds to be significant. There's a lot of truth to the fact that bonds today are basically only bought by those who have to. To lighten up, I quote from Kohout's Devil's Dictionary of Economics and Finance- Bond- Securities that usually provide such miserable returns that no normal investor would voluntarily invest his own money in them, usually purchased on behalf of unsuspecting clients. Governments usually pass laws mandating certain types of institutions (such as pension funds) to invest in bonds. This is actually an indirect form of taxation.

MD
Monday Dayton @mondaydayton Aug 1

Aha, thanks for the comment, I'm still a bit lost but I'm catching on. 😊 I'm not attracted to bonds at all, because just as you write, they will never make the kind of appreciation you can make in the stock market. Yes, some may argue that the stock market can drop significantly and cause losses o versus bonds which are such a pretty conservative. I also don't think people would sell stocks to buy bonds.

DM
Darius Moore @dariusmoore Aug 1

I'd like Czech bonds, but last I checked they haven't been issued for a while.

MD
Monday Dayton @mondaydayton Aug 1

So I haven't thought about this yet, my first goal is to have at least half a million in shares and then maybe I'll look elsewhere.

MS
Mikey Stone @mikeystone Aug 1

At the moment, long-term bonds are expensive. But if interest rates (yields) rise, some of the money from equities may move into them, and the banks' problems may continue.

MD
Monday Dayton @mondaydayton Aug 1

Oh, so it may not be good for the banks then, since the state will probably want to make a profit at any cost if they release them at such a large value. 😊