[mattlutze]

I'm not particularly literate in this, but I've understood a significant portion of the assets are very low yield government bonds.

No bank / institution today probalby wants older bonds that yield e.g. 1% if bonds issued today yield 3.5% and the Fed interest rate is 4.75-5.00%.

So there just may not be a market for them, unless you discount them enough to make the purchase price yield profit in the current inflation environment. At which point, you're selling 20B worth of bonds for e.g. 15B.

[arcticbull]

> No bank / institution today probalby wants older bonds that yield e.g. 1% if bonds issued today yield 3.5% and the Fed interest rate is 4.75-5.00%.

This is the whole 'mark to market' loss thing. If I have a treasury at 4% that I want to liquidate - but new ones are being issued at 5% - I can still do so instantly. I have to make up that 1% myself in cash, though. The 'loss' is the amount I have to come up with to make my treasury equivalent to a new one.

Inflation doesn't factor in.

[s1artibartfast]

>No bank / institution today probalby wants older bonds that yield e.g. 1% if bonds issued today yield 3.5% and the Fed interest rate is 4.75-5.00%.

It is more complicated than that because the price of the bonds change to account for the market alternatives.

As an example, Would you rather buy a bond that returns $1005% for $100, or a greater number of bonds that return $1001% for $20 each?

Because the price of the low interest bond is discounted, the annual ROI is the same as the high interest bond. Additionally, if you hold to maturity, the ROI is better with lower interest (in this example)

[imwithstoopid]

Treasuries are the most liquid market in the world, they are basically used as currency at a certain level.

You can sell treasuries almost instantly for an instantly computed discount/premium...it's not like selling real estate, treasuries are nearly perfectly fungible

So it's not really a matter of demand for low yield treasuries...they've been instantly revalued every second since they were issued. All that matters is the duration remaining.

[lallysingh]

I think that's the point of the "unless you discount them enough" clause in the parent post -- there is a substantial discount compared to par.

[imwithstoopid]

you as the seller don't get to "discount" treasuries, its auto-computed (why would it not be? your treasuries are not special, no one has any reason to buy yours over another with approximately the same duration)

its a currency market, liquid and fungible...there is no "enticement" of buyers

[lallysingh]

Yeah "discount" here means "sell less than par" not "choose to lower my price." I think we're all talking about the same thing from slightly different angles.