The Financial Times reports that there was record demand for 10-year Treasurys this week. “The $21 [billion] sale of 10-year paper sold at a yield of 1.459 per cent, the lowest ever in an auction.” William O’Donnell, a strategist at RBS Securities, told the FT that “we were expecting good auction results but this one has left me speechless.”
Remember: Low yields means we’re getting the money for a cheap. It means the market thinks we’re a safe bet. And it means we have the opportunity to get capital for almost nothing and invest it productively.
Actually, I got something wrong there. I said “almost nothing.” But that 1.459 percent doesn’t account for inflation. And so when you do account for inflation, it’s not “almost nothing.” It’s “less than nothing.” Here are the latest “real yield curves” for Treasurys, which is to say, the yields after adjusting for inflation:
They’re negative. Negative! The market will literally pay us a small premium to take their money and keep it safe for them for five, seven or 10 years. We could use that money to rebuild our roads and water filtration systems. We could use that money to cut taxes for any business that adds to its payrolls. We could use that to hire back the 600,000 state and local workers we’ve laid off in the last few years.
Or, as Larry Summers has written, we could simply accelerate payments we know we’ll need to make anyway. We could move up maintenance projects, replace our military equipment or buy space we’re currently leasing. All of that would leave the government in a better fiscal position going forward, not to mention help the economy.
The fact that we’re not doing any of this isn’t just a lost opportunity. It’s financial mismanagement on an epic scale.