America's financial system came close to the brink

Does anyone else feel seriously... demotivated(?) by these reckless games with <i>the</i> economy? Like, it&#x27;s really getting to me. It&#x27;s a new quality of helplessness seeing these shenanigans in my books. More tangible, raw, direct. Much more insulting. My job, the financial security I&#x27;ve been working for hard, honest struggle, if a handful of people can at will gamble with all of that like it means nothing at all, then why the fuck bother? Why should I get my ass up, if some entitled rich fuck can wipe away years of work and sacrifice for some blatant inside trades with their homies? I mean, for them it&#x27;s just funny numbers, for me it&#x27;s life changing money and existential security. I don&#x27;t know, man. I feel like a fucking peasant.

A lot of people maybe don’t realise how important treasury rates are to their everyday life. You might be thinking “why do I care? I’m not going to go an buy treasuries. I don’t hold treasuries. So if they go up, go down, fall off a cliff it doesn’t matter to me. whoop de doo”.<p>To which I say hold on there a second. Firstly you probably do own some treasuries. If you have any kind of pension it will have some treasuries in it. Also if you buy something like a stock etf they will hold their cash in treasuries probably or use treasuries as collateral when they need to do margin trades. Also your credit card, mortgage, car loan anything like that if you hold it is priced at a spread above treasuries. The spread is to take into account how much more risky you are than the US govt.<p>Also say you’re a founder and you’re doing some kind of investment round. Well the investors are going to price your business using a discounted cash flow model as part of their decision-making process. The discount is an interest rate that is calculated using treasuries. Basically you look at the future cash flows and you deduct interest that you could get on such an asset to get an idea of the value of that future cash today.<p>When someone wants to ship a containerload of goods and they accept a bill of trade or whatever that includes a counterparty credit spread which is a spread over treasuries. You heard a lot about the LIBOR scandal a few years back well interbank rates are derived from a credit curve that is bootstrapped using treasury rates. So any kind of cross-currency transaction or thing with fixed or floating interest (even if it’s not in dollars) is likely to be affected by US treasuries.<p>Literally every financial asset is tied in some way to treasuries because a “risk free rate” is at the basis of option pricing, discounting, lending and borrowing, margin, counterparty credit adjustment etc etc.

&gt; A particular worry in the Treasury market is that a doom loop could arise from the “basis trade”. This is popular with hedge funds and has minted fortunes at some of America’s largest. It attempts to profit from the difference in price between Treasury bonds and Treasury futures contracts, caused by high demand for the futures from asset managers. Traders exploit this by buying Treasuries and selling futures contracts. To amplify the returns, they borrow using the Treasuries they have bought as collateral, then recycle the cash into even more Treasuries. Thanks to this procedure, hedge funds are short some $1trn-worth of Treasury futures.<p>Every few years some dumb shit like this blows up and then the &quot;experts&quot; hem and haw about why reform actually can never be done and &quot;we MUST keep gambling with instruments you see!&quot; it&#x27;s just so transparently stupid at this point.

&gt;And it would be reckless to assume the shocks are over, or that foreign investors’ faith in American assets, now shaken, can be magically restored. How much more can the system take before something really does break?

Worth noting the 10 year are spiking again today and are currently at a higher level than Wednesday: <a href="https:&#x2F;&#x2F;www.marketwatch.com&#x2F;investing&#x2F;bond&#x2F;tmubmusd10y?countrycode=bx" rel="nofollow">https:&#x2F;&#x2F;www.marketwatch.com&#x2F;investing&#x2F;bond&#x2F;tmubmusd10y?count...</a><p>(though they have started recovering some since I posted this originally)

<a href="https:&#x2F;&#x2F;archive.is&#x2F;YqV82" rel="nofollow">https:&#x2F;&#x2F;archive.is&#x2F;YqV82</a>

It&#x27;s already back on the brink.