BAGAKOAA May 22, 2010 The Ten Year Treasury note and what it means to you.
BAGAKOAA;
May 22, 2010 The Ten Year Treasury note and what it means to you.
I had a nice golf game yesterday morning and had a chance to talk with one of my financial mentors about the US treasury notes and what they really mean to a fluffy day trading casino monkey like me. In a very useful succinct statement he said, the 10 year Treasury note yield is like the Dow Jones Average for big money people in the money (bond) market.
Let me take a quick moment and break it down. The US Government issues, actually auctions bonds every week. This is debt that theoretically will be paid back. The interest on those bonds becomes the bellwether to gauge the return on all other investments in the market place. The yield or interest on the 10 year treasury notes issued each week also tells the market place how much risk acceptance is in the market place. Here is what I mean.
The last couple of weeks, the markets have been very volatile. We had the greek-Eurozone melt down right after we had the still yet to be determined cause of the flash crash, a senate banking legislation that no one has read, as well as some good but occasionally contradictory economic news. This creates a situation where many if not most investors seek safe haven investments. The US Treasury Notes fit that bill. If millions of investors are putting money into US Treasure Notes then our government does not need to make them quite so attractive so they LOWER the interest rates or yields on those notes. You can use any source you want, but look at the yields for May 21st (Last Friday’s Auction), May 14th (The Previous Friday), and one year ago. The numbers look like this 3.54% 3.56% and 3.14%. This is what you can extract from those figures. In the last week, we have seen enough chaos and concern in the market place to drive investors to the US Treasure notes. There was enough demand that the auction rates for those bonds went down 2 hundreds of a percent to 3.54% from 3.56%, but they are significantly higher than they were a year ago. Remember we had the March 2009 market lows and the world was ending and we were all going to be sterilesix foot methane breathing cockroaches. Treasure notes had a low yield of 3.14 as everyone wanted to be in safe investments. In November of 2008 it was as low as 2.08%.
This is important to us “Game Players” because this is really the gauge to determine the value and the yields of stocks and bonds we want to invest in. So IF the “safest” investment in the world is US Treasury Notes and they are currently yielding 3.54%, how much more would you be willing to risk to make more return on your stock investments. That is what you need to ask yourself every time you are looking to buy or sell a stock. If you are trying to be conservative and protect your assets, stay ahead of inflation (Currently there is NONE, actually we are in a deflationary cycle), you probably want to achieve that 3.5% interest rate. So what are the future earnings of the company you are looking at? What are their current dividend yields if any? What are their future growth prospects? Do the homework. If you can’t beat the 3.5% with something you feel comfortable with, consider some high quality bonds, be they corporate or government. You should have no problem meeting or beating the 3.5%. If you are lucky enough to have a few more earning years ahead of you and you can continue to invest and don’t mind taking a bit more risk, meaning reaching for returns in excess of 3.5%, then you still do your homework but you look for better returns on a little more risky investments.
So right now you have big players LEAVING stocks for the safety of GOLD, SILVER and Treasury notes or high quality bonds, depressing the prices on some great stocks. Their PE ratios are very attractive. Is your risk assessment telling you to look for a safe haven or go on a shopping spree. Only you can answer that question, but now you know how to assess the meaning of the 10 Year Treasure Auction rate or yield. Thanks Tim.
Salve Lucrum
May 22, 2010 The Ten Year Treasury note and what it means to you.
I had a nice golf game yesterday morning and had a chance to talk with one of my financial mentors about the US treasury notes and what they really mean to a fluffy day trading casino monkey like me. In a very useful succinct statement he said, the 10 year Treasury note yield is like the Dow Jones Average for big money people in the money (bond) market.
Let me take a quick moment and break it down. The US Government issues, actually auctions bonds every week. This is debt that theoretically will be paid back. The interest on those bonds becomes the bellwether to gauge the return on all other investments in the market place. The yield or interest on the 10 year treasury notes issued each week also tells the market place how much risk acceptance is in the market place. Here is what I mean.
The last couple of weeks, the markets have been very volatile. We had the greek-Eurozone melt down right after we had the still yet to be determined cause of the flash crash, a senate banking legislation that no one has read, as well as some good but occasionally contradictory economic news. This creates a situation where many if not most investors seek safe haven investments. The US Treasury Notes fit that bill. If millions of investors are putting money into US Treasure Notes then our government does not need to make them quite so attractive so they LOWER the interest rates or yields on those notes. You can use any source you want, but look at the yields for May 21st (Last Friday’s Auction), May 14th (The Previous Friday), and one year ago. The numbers look like this 3.54% 3.56% and 3.14%. This is what you can extract from those figures. In the last week, we have seen enough chaos and concern in the market place to drive investors to the US Treasure notes. There was enough demand that the auction rates for those bonds went down 2 hundreds of a percent to 3.54% from 3.56%, but they are significantly higher than they were a year ago. Remember we had the March 2009 market lows and the world was ending and we were all going to be sterilesix foot methane breathing cockroaches. Treasure notes had a low yield of 3.14 as everyone wanted to be in safe investments. In November of 2008 it was as low as 2.08%.
This is important to us “Game Players” because this is really the gauge to determine the value and the yields of stocks and bonds we want to invest in. So IF the “safest” investment in the world is US Treasury Notes and they are currently yielding 3.54%, how much more would you be willing to risk to make more return on your stock investments. That is what you need to ask yourself every time you are looking to buy or sell a stock. If you are trying to be conservative and protect your assets, stay ahead of inflation (Currently there is NONE, actually we are in a deflationary cycle), you probably want to achieve that 3.5% interest rate. So what are the future earnings of the company you are looking at? What are their current dividend yields if any? What are their future growth prospects? Do the homework. If you can’t beat the 3.5% with something you feel comfortable with, consider some high quality bonds, be they corporate or government. You should have no problem meeting or beating the 3.5%. If you are lucky enough to have a few more earning years ahead of you and you can continue to invest and don’t mind taking a bit more risk, meaning reaching for returns in excess of 3.5%, then you still do your homework but you look for better returns on a little more risky investments.
So right now you have big players LEAVING stocks for the safety of GOLD, SILVER and Treasury notes or high quality bonds, depressing the prices on some great stocks. Their PE ratios are very attractive. Is your risk assessment telling you to look for a safe haven or go on a shopping spree. Only you can answer that question, but now you know how to assess the meaning of the 10 Year Treasure Auction rate or yield. Thanks Tim.
Salve Lucrum
posted by J.J. Phineaus at 12:30 PM
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