We’ve been talking the past week and a half about the economy, interest rates, and normalization.
Today, let’s delve into the cornerstone of global finance—US Treasuries. Treasuries have been the bedrock of the global financial system in a sense… but the foundation is now cracking.
US Treasuries are government debt securities issued by the United States Treasury Department. They’re considered risk-free assets. And they underpin much of the global financial system. Here\’s how they work:
Domestic Role: Treasuries finance the US government’s operations. They’re sold to investors who then receive periodic interest payments at the specified yield for the full duration of the security. Insurance companies, banks, investment funds, and private corporations buy Treasuries to earn a rate of return on their cash reserves.
Global Role: Treasuries have been the world’s reserve currency since the end of World War II. Countries and central banks use them to store value in dollars, settle international transactions, and to manage their own currencies. This allows the US government to borrow money at lower rates and issue financial sanctions with global impact.
Both domestic and foreign institutions have used US Treasuries as a primary reserve asset for over 50 years now. But as we discussed yesterday, every aspect of the economy has been distorted in that time… and the US Treasury market is no different.
Continue reading “The bedrock is cracking…”