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Higher yields mean lower market prices in dollar terms, and vice versa. | Higher yields mean lower market prices in dollar terms, and vice versa. | ||
:<span style="color:#4B0082">'''''US yields post sharp gains as Trump victory triggers caution about deficits'''''</span> | |||
:"U.S. Treasuries fell sharply on Wednesday, propelling yields to multi-month highs as Donald Trump's presidential election victory ignited bets on economic policy shifts that could boost deficits and inflation. | |||
:The Republican former President swept back to power early on Wednesday, beating Democratic candidate Vice President Kamala Harris and capping a political comeback four years after he left the White House. | |||
:The benchmark 10-year Treasury yield rose to 4.479%, its highest since July, as polls also showed Republicans winning control of the Senate and a close race for the House of Representatives. | |||
:The 10-year yield, which moves inversely to the price, was last up 15.3 bps at 4.441%, on track for its biggest one-day rise since April... | |||
:Trump campaigned on a platform of tax cuts, which economists say would juice the economy, widen budget deficits and increase government borrowing. | |||
:He also touted tariffs, which analysts expect to stoke inflation and reduce the Federal Reserve's scope to cut interest rates." | |||
:''Reuters - 6 November 2024.'' | |||
:<span style="color:#4B0082">'''''What's the significance of this news for treasurers?'''''</span> | |||
:"The news above is about US dollar interest rate rises in early November 2024, and what caused them. | |||
:A key consequence for treasurers is potentially higher costs of borrowing, in all currencies. | |||
:The “US yields” in the headline are the prevailing market rates of return on US central government debt securities (“treasuries”) and also the US government’s cost of further borrowing from this market. | |||
:When US treasury yields rise, there’s an immediate upward influence on all other US dollar interest rates. Rates in other currencies will frequently follow. | |||
:The cause of the rise was selling by holders of US treasuries. Factors driving the selling included the market’s concern about likely future tax cuts, without plans for corresponding reductions in government spending. | |||
:That would increase the shortfall between US government spending and revenue, (the federal budget deficit). Adverse effects on treasury bondholders include inflation risk. | |||
:It's possible that fuller discussion with the markets might have reassured them about this risk. Another example is the UK gilts crisis, also known as the UK LDI crisis, of 2022 (see links below). | |||
:A second key lesson from this story for corporate treasurers is to establish and maintain effective dialogue with our lending markets. Dialogue with markets can help manage investors’ perceptions of our credit risk, and the risk-perception element our borrowing costs." | |||
:''ACT Learning - Doug Williamson - November 2024.'' | |||
| Line 45: | Line 89: | ||
== See also == | == See also == | ||
* [[Annual effective yield]] | * [[Annual effective yield]] | ||
* [[Benchmark]] | |||
* [[Bond]] | * [[Bond]] | ||
* [[Bond equivalent yield]] | * [[Bond equivalent yield]] | ||
* [[Bond vigilante]] | |||
* [[Credit spread ]] | * [[Credit spread ]] | ||
* [[Current yield]] | * [[Current yield]] | ||
* [[Deficit]] | |||
* [[Discount instruments]] | * [[Discount instruments]] | ||
* [[Discount rate]] | * [[Discount rate]] | ||
| Line 57: | Line 104: | ||
* [[Equity]] | * [[Equity]] | ||
* [[Exit yield]] | * [[Exit yield]] | ||
* [[Federal Reserve]] | |||
* [[Fixed income]] | * [[Fixed income]] | ||
* [[Fixed rate bond]] | * [[Fixed rate bond]] | ||
| Line 65: | Line 113: | ||
* [[High-yield bond]] | * [[High-yield bond]] | ||
* [[Holding period yield]] | * [[Holding period yield]] | ||
* [[Inflation]] | |||
* [[Interest]] | * [[Interest]] | ||
* [[Interest rate]] | * [[Interest rate]] | ||
| Line 71: | Line 120: | ||
* [[Inverse relationship]] | * [[Inverse relationship]] | ||
* [[Investment]] | * [[Investment]] | ||
* [[Juice]] | |||
* [[Liquidity]] | * [[Liquidity]] | ||
* [[Market value]] | * [[Market value]] | ||
| Line 81: | Line 131: | ||
* [[Periodic rate of interest]] | * [[Periodic rate of interest]] | ||
* [[Periodic yield]] | * [[Periodic yield]] | ||
* [[Policy]] | |||
* [[Property]] | * [[Property]] | ||
* [[Rate of return]] | * [[Rate of return]] | ||
* [[Redemption yield]] | * [[Redemption yield]] | ||
* [[Rental yield]] | * [[Rental yield]] | ||
* [[Reuters]] | |||
* [[Riding the yield curve]] | * [[Riding the yield curve]] | ||
* [[Running yield]] | * [[Running yield]] | ||
| Line 91: | Line 143: | ||
* [[Spot yield]] | * [[Spot yield]] | ||
* [[Sterling commercial paper]] | * [[Sterling commercial paper]] | ||
* [[Tariff]] | |||
* [[Tax yield]] | * [[Tax yield]] | ||
* [[Taxable equivalent yield]] | * [[Taxable equivalent yield]] | ||
* [[Time value of money]] (TVM) | * [[Time value of money]] (TVM) | ||
* [[Treasury]] | |||
* [[Treasury yield]] | * [[Treasury yield]] | ||
* [[Trumponomics]] | |||
* [[TSY yield]] | * [[TSY yield]] | ||
* [[UK gilt crisis]] | |||
* [[UK LDI crisis]] | |||
* [[White House]] | |||
* [[Yield basis]] | * [[Yield basis]] | ||
* [[Yield curve]] | * [[Yield curve]] | ||
| Line 109: | Line 167: | ||
==Other resources== | ==Other resources== | ||
*[https://www.reuters.com/markets/us/yields-soar-trump-win-stirs-bond-vigilantes-2024-11-06/ US yields post sharp gains as Trump victory triggers caution about deficits - Reuters - 6 November 2024] | |||
*[[Media:2015_06_June_-_Safety_first.pdf| Safety first, The Treasurer]] | *[[Media:2015_06_June_-_Safety_first.pdf| Safety first, The Treasurer]] | ||
*[http://www.treasurers.org/node/8837 Triumph with timelines, The Treasurer] | *[http://www.treasurers.org/node/8837 Triumph with timelines, The Treasurer] | ||
Latest revision as of 21:53, 22 November 2024
1.
The rate of return (or cost) on the current market value of an asset (or liability), usually expressed as a percentage per annum.
For example, today’s yield to maturity of a bond measures the total return to an investor in the bond, reflecting both
- The interest income over the remaining life of the bond and
- Any capital gain (or loss) from today’s market value to the redemption amount payable at maturity.
When the market yield to maturity is applied to discount the future cashflows of the asset or liability, the net present value of all of the cashflows - including the current market purchase price - is Nil.
Market yields on fixed rate bonds - and other fixed income instruments - move in the opposite the direction from the market price expressed in dollars (or other currency).
Higher yields mean lower market prices in dollar terms, and vice versa.
- US yields post sharp gains as Trump victory triggers caution about deficits
- "U.S. Treasuries fell sharply on Wednesday, propelling yields to multi-month highs as Donald Trump's presidential election victory ignited bets on economic policy shifts that could boost deficits and inflation.
- The Republican former President swept back to power early on Wednesday, beating Democratic candidate Vice President Kamala Harris and capping a political comeback four years after he left the White House.
- The benchmark 10-year Treasury yield rose to 4.479%, its highest since July, as polls also showed Republicans winning control of the Senate and a close race for the House of Representatives.
- The 10-year yield, which moves inversely to the price, was last up 15.3 bps at 4.441%, on track for its biggest one-day rise since April...
- Trump campaigned on a platform of tax cuts, which economists say would juice the economy, widen budget deficits and increase government borrowing.
- He also touted tariffs, which analysts expect to stoke inflation and reduce the Federal Reserve's scope to cut interest rates."
- Reuters - 6 November 2024.
- What's the significance of this news for treasurers?
- "The news above is about US dollar interest rate rises in early November 2024, and what caused them.
- A key consequence for treasurers is potentially higher costs of borrowing, in all currencies.
- The “US yields” in the headline are the prevailing market rates of return on US central government debt securities (“treasuries”) and also the US government’s cost of further borrowing from this market.
- When US treasury yields rise, there’s an immediate upward influence on all other US dollar interest rates. Rates in other currencies will frequently follow.
- The cause of the rise was selling by holders of US treasuries. Factors driving the selling included the market’s concern about likely future tax cuts, without plans for corresponding reductions in government spending.
- That would increase the shortfall between US government spending and revenue, (the federal budget deficit). Adverse effects on treasury bondholders include inflation risk.
- It's possible that fuller discussion with the markets might have reassured them about this risk. Another example is the UK gilts crisis, also known as the UK LDI crisis, of 2022 (see links below).
- A second key lesson from this story for corporate treasurers is to establish and maintain effective dialogue with our lending markets. Dialogue with markets can help manage investors’ perceptions of our credit risk, and the risk-perception element our borrowing costs."
- ACT Learning - Doug Williamson - November 2024.
2. Equity investment.
Abbreviation for dividend yield.
3.
More broadly, any measure of a rate of return or borrowing cost.
In this broader sense, yield may be calculated and expressed on a number of different bases.
For this reason, it is essential to identify clearly the basis on which a given yield is expressed, before using it for calculation or comparison.
4. Taxation.
Abbreviation for tax yield.
5. Property investment.
Abbreviation for rental yield.
See also
- Annual effective yield
- Benchmark
- Bond
- Bond equivalent yield
- Bond vigilante
- Credit spread
- Current yield
- Deficit
- Discount instruments
- Discount rate
- Discount yield
- Dividend yield
- Earnings yield
- Effective annual yield
- Equity
- Exit yield
- Federal Reserve
- Fixed income
- Fixed rate bond
- Forward yield
- Gross redemption yield
- Gross yield
- High-yield
- High-yield bond
- Holding period yield
- Inflation
- Interest
- Interest rate
- Interest yield
- Internal rate of return (IRR)
- Inverse relationship
- Investment
- Juice
- Liquidity
- Market value
- Market yield
- Money market yield
- Nominal annual rate
- Nominal annual yield
- Nominal yield
- Par yield
- Periodic rate of interest
- Periodic yield
- Policy
- Property
- Rate of return
- Redemption yield
- Rental yield
- Reuters
- Riding the yield curve
- Running yield
- Security
- SLY
- Spot yield
- Sterling commercial paper
- Tariff
- Tax yield
- Taxable equivalent yield
- Time value of money (TVM)
- Treasury
- Treasury yield
- Trumponomics
- TSY yield
- UK gilt crisis
- UK LDI crisis
- White House
- Yield basis
- Yield curve
- Yield curve risk
- Yield pick-up
- Yield spread
- Yield to conversion
- Yield to maturity
- Yield to redemption
- Yield to worst
- Zero coupon yield
