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I disagree. Treasury yields are not that low because of trust, but rather because the world is awash with money, and the owners of that money are desperate to park it in a liquid format, of which there are few options on the scale needed.


I actually meant to include this in the original comment.

I disagree with you in this respect. Investors do have a lot of money, and they do need vehicles in which to invest their money. But when equities are not attractive, they go for safer bets: treasury bonds.

So in essence, it is an issue of trust. Investors would rather place their money in equities as opposed to trusts because the yield is so low, but they fear placing money in equities.

I'm not sure I understand your argument about the scarcity of liquid instruments. The number of available equities and money market instruments hasn't shrunk. And there are bonds available from other currencies.


I still don't think it's trust. It's desperation. Equities aren't really in the same class as government bonds. But the holders of all this cash (I won't even call them investors, but rather folks left holding the bag after a gigantic monetary expansion) can't look to equities for a better rate, because in order for any instrument to provide a reliably high yield, the money supply would have to grow even faster, and it's already grown too fast.


Citations? I am familiar with the parent's argument, but haven't heard this one before.


I think from a simple standpoint, no citations are needed:

Fact #1) The U.S. borrows a bunch-o-money, therefore there exists a bunch of money available to lend.

Fact #2) Owners of that money would prefer a higher yield, but there does not exist enough alternative assets to put such a hugh amount of money, e.g. look at gold and oil price curves. Real estate is an option for some but it's messy and illiquid.

Fact #3) There currently exists no viable plan for the U.S. to reduce their unfunded liabilities, so what exactly are the owners of this money putting their trust in?


Safe assets are the most desirable, and in many cases the only permissible, collateral. Given increased collateral demand for financial institutions for reserves, margin, and collateralised borrowing and the potentially shrinking pool of non-Treasury "safe assets" not already on central banks' balance sheets the "price" (yield) of (on) safe assets would be expected to degrade swiftly without regard to concerns about the "safe" asset's quality.

http://www.imf.org/external/pubs/ft/wp/2012/wp1295.pdf (Money and Collateral)

http://www.imf.org/external/pubs/ft/wp/2012/wp12246.pdf (Dynamics of Global Liquidity)




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