Permanent Portfolio Forum
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https://www.gyroscopicinvesting.com/forum/viewtopic.php?t=8114
If there are not enough buyers at the auction for whatever reason, then the Fed will just monetize what is unsold.jafs wrote: In practice, I would guess that this would mean that the government issues a bunch of bonds at a certain interest rate, but doesn't get as many buyers as they'd like, and so they have to increase the interest rate to attract more buyers.
I think that the pre-negotiation of the triumvirate -- Fed, Treasury, Primary Dealers -- is to make sure auctions don't fail outright, but obviously they have to set the yield relative to what the secondary market has determined the yield already is. If there was no secondary market then it is possible they could set the yield to whatever they bloody want to as they do for the savings bonds.jafs wrote: What does that mean?
If they need to borrow money, and they don't get enough buyers, wouldn't they have to issue more bonds at more attractive rates to do that?
I looked it up - that's the weird part in which one part of government essentially buys bonds from another part. It's why about 40% of our debt is set up between parts of government. Seems to me that's a mechanism that distorts the normal supply/demand forces when it comes to government treasuries.