Over the past month, U.S. treasury yields have been continuing to fall as the FED continues to worry many investors about the state of the U.S. economy and banking system. While this is a major issue in the U.S. it also has been effecting the rest of the world as places like the Deutsche Bank in Germany have been experiencing a reduction in its shares as well due to the same banking system concerns. The impact of these reduced treasury yields has caused prices in economies to fluctuate as they go hand in hand or in other words, are directly correlated with each other. To put it in perspective one basis point of a treasury yield is equal to a 0.01 percent change in prices of the yields and 10 year yields lowered 5 points and 2 year ones lowered 3 points. These are pretty substantial drops in hindsight even though they sound somewhat minimal at only a couple of a hundredth percents.
Europeans don't seem to be as concerned about the issue as they believe to have a very liquid and strong economy that can correct the issues if need be by liquidating. The U.S. on the other hand is directly confronting the FED as they have been holding meetings about how to correct this yield problem. In their most recent meeting on 3/22/2023 they raised interest rates 25 basis points. While this could have an overall negative impact on the economy it is currently the best possible solution according to the FED. Hopefully, these basis point changes across the economy will slow down and the economy will be able to fully level out soon.
1 comment:
My knowledge of treasury yields isn't very comprehensive so this was interesting to read. I'm curious as to how treasury yields have such a large effect on European economies? Would this be due to them having a high percentage of U.S bonds in their portfolios? If so how could they remedy this by "liquidating" if treasury yields are falling?
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