Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC

Re:Joint Statement by the Department of the Treasury, Federa... by acjacobson on Monday March 13, 2023 @06:09AM (#35133545)

The price doesn't fall because the future purchasing power falls, the price falls because there are better alternatives in the market. No one will pay $1000 for a 2% return when they can pay $1000 for a 5% return. Market participants will always maximize their return. Bond prices adjust to be competitive or equivalent.

But the govt. doesn't have this problem. They don't care about maximizing return - they care about containing contagion. So they can pay $1000 for a 2% return and not still not lose money over the long term.

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Re:Joint Statement by the Department of the Treasury, Federa... by unicornmama on Monday March 13, 2023 @07:28AM (#35134192)

Inflation strongly determines interest rates. You are getting 5% return because inflation expectations are high which caused the Fed to raise interest rates. When you see 5% risk free, you assume high inflation. The price falls because of the risk free rate, which is caused by high inflation, which causes drop in purchasing power.

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