Article

2018-08-09 Economy

US bond yield rise to 5% could wreck Asia’s economic year

[AsiaTimes] With Asia's central banks holding massive stashes of US Treasuries, a yield rise could be devastating – and could trigger a regional panic sell.

Jamie Dimon just said what’s on the minds of many Asian central bankers. More to the point, he previewed the worst thing that could befall their balance sheets this year: 5% US bond yields.

The JPMorgan Chase CEO’s prediction is worrisome because, odds are, he’s right. As Dimon said over the weekend in Aspen, Colorado: “I think rates should be 4% today. You better be prepared to deal with rates 5% or higher – it’s a higher probability than most people think.”

Actually, Asia has been thinking about it. Lots.

Details and further story at the link.

Posted by 3dc 2018-08-09 00:00|| || Front Page|| [11134 views ] Top

#1 What happens to the US if bond yields rise to 5%?

Posted by Anguper Hupomosing9418 2018-08-09 11:52|| 2018-08-09 11:52|| Front Page Top

#2 Nothing if you don't sell, certainly a loss if you do sell.

Bonds are sold on a present value discounted basis: the future value of a $10K treasury bond is exactly $10K at maturity, but if you need to sell it a year before maturity, you can't get 10K for it if the rate is currently 5% because someone would buy a 1 year bond for 10000/1.05=9523 (less money) and if they had the time, would get that 10K next year.

If someone bought the bonds at 1% but sold it prematurely at 5%, they'd suffer a real dollar loss because the present value of the bonds dropped. Ditto for those who are invested in 1% bonds in their ESP and had to liquidate.

Posted by Ptah 2018-08-09 18:25|| 2018-08-09 18:25|| Front Page Top

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