09 December 2008
One months ago, the yield on the 5-year Treasury note was 2.51%. Today the yield is 1.61%. Over the same period, the price of a Credit Default Swap for the 5-year Treasury, basically insurance against the Treasury not paying off, has risen to $60 per $10,000 insured from $35.70, an increase of 68%. (A year ago, the cost was $8.00 per $10,000.) In other words, the risk has gone up while the yield has gone down. Generally, so much money is flooding into Treasuries that short-term notes are trading at essentially 0, and some have a negative real yield (that is, the interest paid is less than inflation). Anyone want to offer an explanation?
Posted by David at 6:48 PM