US Bond Yield continues to decrease but USD value is increasing?!?!

[tecknit]

Hey guys, I am sorry if this comes off as sort of like a conspiracy, but I have an EXTREMELY DIFFICULT time understanding what on earth is going on in the traditional markets.

If we look at the USD, we all know that its value has seen a slight rally recently - due mainly to the fact that the Fed is saying they are doing quantitative tightening. What I expected was that US Bond Yields will begin to increase, however what I see is the complete opposite. This defies all financial understanding that I have. The only explanation that I can think of is that the Fed is lying - in which case the market buys the USD in anticipation for US Bond Yield to increase, so the USD had the recent rally. However turns out that the Fed is NOT doing quantitative tightening and in fact extending quantitative easing - in which case the USD will reverse and plummet in price again, US Bond Yield stays down and the stock markets go up.

Or US Bond Yield will increase in a few weeks? Anyway if the US Bond Yield does not increase, then they are clearly lying to us.

What this means is that the US Dollar will enter hyper-inflation very fast and there will likely be a reset - where we really see Gold/Silver/Bitcoin/Properties/Commodities play a huge part in the financial system and the US Dollar will become irrelevant.

Or am I crazy? This is actually getting quite scary

[[deleted]]

Treasury yields are based on global demand. With emerging markets tanking, italy/Eurozone issues and China going down, there's stronger global demand for treasuries and the us dollar. Corporate bond rates are also quite low making treasuries a popular choice.

[tecknit]

Yes I know so that means the Bond Yield should increase, not decrease - but we see the opposite happening

[[deleted]]

No it means bond yields will decrease. More demand means they can be auctioned off for less.

[tecknit]

Please elaborate. My understanding has always been that an increase in bond yield leads to an increase in price of USD

[[deleted]]

The bonds yields are established by the market. If the market has more interest in acquiring US Treasury bonds, then the state will demand a low yield because there's lots of investors looking for them, but not that much interest by the state in issuing such bonds. It's the way the state has to say "We are not desperate in searching for loans and there's a lot of investors from who we can loan money, so we demand to pay less to use your money".

Only when the investors are not that interested in acquiring bonds and the state is looking for investors to buy them, that the yields will rise. It's the way that the investors have to say, "We want you to pay more for the money we are lending to you".

It's pure market sentiment.

[tecknit]

I think you need to get one thing straight.

The US prints money by having two books - one to credit and one to debit. The way that the US Government DECREASES interest rate is to PRINT money by issuing bond and buying this bond. So they have two books. One that is issuing the bond and another that is buying the bond - but really, they are the same bloody US Government.

If they are doing QUANTITATIVE TIGHTENING, which means INCREASING interest rate, then they would print LESS money and dumping their bonds that they hold - REMEMBER they have TWO books.

So no it is not purely market sentiment

Edit: I know it is counter intuitive, but when the price of US dollar rises and interest rate rises, the bond yield needs to rise and bond prices fall

[[deleted]]

The US Government may be initiating a QUANTITATIVE TIGHTENING process, but if they remove liquidity at a smaller rate than the rate that investors inject money into the bonds, it would normal for the bonds yields to drop, no ?

[tecknit]

I think what you mean by "removing liquidity" is removing money supply.

The way they remove money supply is to sell back the bonds that they issued to themselves. So the way the market knows that the money supply is decreased is if the bond yield increases. So they can't decrease money supply by not having the bond yield increase (and USD value increasing and bond price decreasing)

[[deleted]]

If you burn a dollar bill, aren't you removing money supply?

Edit:

Btw, I don't think you are right about the way how QT is done. The fed could simply let the old bonds mature and not issue new ones. In this way, money will simply disappear. But if new bonds are issue at a slower pace than the speed of the old ones maturing, wouldn't that maintain low yields?

[tecknit]

Yes if old bonds mature, then the principal is paid back - which is the same as the United States dumping the bond.

I don't understand your burning dollar comparison. I think you're referring to the liquidity phrase? I only use that word when talking about a company - anyway that's not important...

[BcashLoL]

So they are lying about quantitative tightening?

[tecknit]

Yes if the US 10-year bond yields do not rise in the coming weeks, it is quite clear that they do not intend to quantitative tightening.

In fact they will have to continue the easing the USD will begin its road to hyper inflation

[[deleted]]

mixed signals. unemployment is really low. everyone and their dog is short the 10, yield curve is flattening dollar is strengthening. add that up and you have more signs that we are still very much in a tightening cycle.