We are back! Paradise for me is the Pacific Ocean. I’m happy on it, in it or near it and of course I took my reading material along. I hope the following provides a perspective that we sometimes lose and one that traveling abroad can often bring back.
Treasuries and Money
While in paradise, I stumbled upon the following in the March 10-16 issue of The Economist.
“In a financial landscape full of oddities, the prospect of America being paid interest by its creditors when its national debt is rocketing is one of the oddest. The Treasury recently disclosed it is exploring how to let investors enter negative yields when bidding at debt auctions. Clearly, demand for American government debt is driven by much more than a hunger for returns. Financial market participants use Treasury bonds and bills as collateral to secure lending, for instance. And for risk-adverse investors such as foreign central banks and retirees, America’s debt is uniquely suited to storing savings without much due diligence. In short, its government debt is a lot like money.
This analogy is not perfect, of course. Treasury bonds are less useful for buying things and government debt carries at least the possibility of default. But in terms of liquidity, risk and returns, few things come closer to money.”
My average client does things differently, of course, than a foreign central bank and I have yet to have anyone ask for a negative return.
Happy to be back (I think),
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Government Bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
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