I'm wondering how to interpret this statement: "Long duration bonds have endured their worst drawdown in history." Is she saying something more than "interest rates went up?" Didn't they go up more when Volcker did it in the 1980's?
The graph in the article starts in 2010 and shows prices for an ETF for long-duration treasuries. It seems this is usually charted as market yield, and here's a graph from FRED of 20-year treasury market yields going back to 1953:
When interest rates for new bonds go up, the value of existing bonds go down. This only ever matters if you intend to resell the bond. If you hold it to maturity, you will get the same payout as you agreed to. However, if you try to sell your old bond with 3 percent yield, when bond buyers can go grab a bond with a 5 percent yield, they will pay you a lower price.
> When interest rates for new bonds go up, the value of existing bonds go down.
I'm sure skybrian understands that. The question is why prices fell more recently than they did back in 1981, when Volcker pushed interest rates much higher.
Apart from the fact that the Fed sets short term interest rates, and bonds, being long term loans, do not necessarily go the same way, there is the pesky behavior of derivatives. If price (p) as a function of yield (y) goes as
p(y) ~ 1 / y
then its derivative, i.e. how much price will change in response to a change in yield is
dp/dy ~ -1 / y^2
which tells you that price will move faster at lower yields.
Thanks! Not in a position to do anything more than eyeball it on my mobile phone, but it seems long-term bond prices started out much higher this time (very low interest rates), so they had further to drop.
In a neoclassical economic model with the assumption of permanent equilibrium constraints, there is no such thing as an unstable money system. So neoclassical economists deny that it would ever matter whether the money system is stable or not. In fact, anyone studying money is considered a crank akin to someone studying flat earth theory, which is unfortunate, because it means we every day people have to live with that instability.
appealing to the extremes (events) drives engagement.
if you just say nothing is going to happen, no one cares.
if you're serious about disinflation then you shouldn't be constantly signaling that you'll do whatever it takes to bailout bankrupt institutions.