One part of the puzzle is that most institutions are limited in what kind of assets they can buy. They are further limited by what kind of risk/return profile their investors are looking for. If you’re holding government debt, it’s considered pretty safe and has very low volatility. You’re not going to lose that much money in any given year (but you also won’t make much). For an index fund you could lose or make +/- 20% in any given year. Some institutions just can’t tolerate that risk in the sense that it’s not their job to take on that much risk.
What kind of organizations have trillions laying around while they can’t tolerate risk? If I would run the Chinese division that currently owns treasury bills, why would I have a problem with the risk?
The fact that you can just raise a trillion of additional debt in a crisis also suggest that simply the decision to raise more money brings owners of a trillion dollar to decide to suddenly want to hold the bonds.
Losing money with bonds seems very doable. Accordigng to bad internet searching because I don’t know the best terms, between October of 1993 and October of 1994, the 30-year on-the-run Treasury bond lost about 30% of its value.
Hmm, then can you be more specific what “people” and “institutions” you’re referring to in “Why are people willing to hold so much government debts at zero percent interest rates? Why don’t the institutions that hold so much debt instead buy index funds?” Are you talking about governments? Because almost all people and institutions don’t have trillions lying around.
In total there are 26 trillion dollars in US government debt. That’s 3 trillion more then at the beginning of this year. That money has to come from somewhere and it’s hard for me to understand where that kind of money comes from.
My sanity check reflexes tell me that it’s strange that this money is easily available but I might not have a good grasp to ask the right question ;)
I don’t know who owns the majority of US treasury bills. In total the US government seems to owe $26 trillion in July 2020. 6 trillion seem to be held intragovernmentally by the FED and other sources which is more understandable but it’s unclear why so much other institutions are willing to hold them.
One part of the puzzle is that most institutions are limited in what kind of assets they can buy. They are further limited by what kind of risk/return profile their investors are looking for. If you’re holding government debt, it’s considered pretty safe and has very low volatility. You’re not going to lose that much money in any given year (but you also won’t make much). For an index fund you could lose or make +/- 20% in any given year. Some institutions just can’t tolerate that risk in the sense that it’s not their job to take on that much risk.
What kind of organizations have trillions laying around while they can’t tolerate risk? If I would run the Chinese division that currently owns treasury bills, why would I have a problem with the risk?
The fact that you can just raise a trillion of additional debt in a crisis also suggest that simply the decision to raise more money brings owners of a trillion dollar to decide to suddenly want to hold the bonds.
Losing money with bonds seems very doable. Accordigng to bad internet searching because I don’t know the best terms, between October of 1993 and October of 1994, the 30-year on-the-run Treasury bond lost about 30% of its value.
Hmm, then can you be more specific what “people” and “institutions” you’re referring to in “Why are people willing to hold so much government debts at zero percent interest rates? Why don’t the institutions that hold so much debt instead buy index funds?” Are you talking about governments? Because almost all people and institutions don’t have trillions lying around.
In total there are 26 trillion dollars in US government debt. That’s 3 trillion more then at the beginning of this year. That money has to come from somewhere and it’s hard for me to understand where that kind of money comes from.
My sanity check reflexes tell me that it’s strange that this money is easily available but I might not have a good grasp to ask the right question ;)
I don’t know who owns the majority of US treasury bills. In total the US government seems to owe $26 trillion in July 2020. 6 trillion seem to be held intragovernmentally by the FED and other sources which is more understandable but it’s unclear why so much other institutions are willing to hold them.