Generally, the more you want to punish an investment for bad stuff about it (for instance, a Treasury being issued by a dicey borrower like America), the higher you will demand the Yield to be.

So, just because the Stated Rate offered by the Treasury Bill, Bond, Note doesn’t increase in response to an event in Washington doesn’t mean everything is ok and America’s borrowing costs haven’t increased. Purchaser’s will simply discount the revenue stream at a higher Yield thereby lowering the amount of money they are willing to pay for the Treasury…even though the Stated Rate on the Treasury has remained the same.

Point being, it is not entirely accurate to say that actions of Washington are irrelevant to the Treasury market and Stated rates indicate that Washington’s conduct is rock solid and sensible. Don’t be fooled. When Washington acts like a bunch of jackasses they raise the Yield and lower the amount of money the Treasury offering will bring in but they will only point out the fact that the Stated Rate hasn’t changed as proof of their responsibly representing the People.

(yea, I know, it’s a simplification…so go ahead and offer your own explanation)


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