Treasure

Treasure (pronounced trezh-er)

(1) Wealth or riches stored or accumulated, especially in the form of precious metals, money, jewels, or plate; wealth, rich materials, or valuable things.

(2) A thing, beast or person greatly valued or highly prized.

(3) As the verbs treasured & treasuring, carefully to retain or keep in store, as in the mind; to regard or treat as precious; cherish; to put away for security or future use, as money.

(4) A term of endearment in the sense of “cherish” (archaic).

1125–1175: From the Middle English tresor, (displacing the native schat) from the Old French tresor (treasury, hoard, treasure (trésor in Modern French)), from the Gallo-Roman tresaurus, from the Latin thēsaurus (storehouse, hoard; anything hoarded (source also of Spanish & Italian tesoro)), from the Ancient Greek θησαυρός thēsauros (store, treasure, treasure house) (related to tithenai (to put, to place), from a reduplicated form of the primitive Indo-European root dhe- (to set, put).  In Middle English there was also the spelling thresur, the modern spelling is from the sixteenth century.  It replaced the Old English goldhord & maðm and the meaning extended from hoards of precious metals etc to a general sense of "anything valued" from circa 1200.  The verb emerged in late fourteenth century Middle English, a derivative of the noun.  It meant literally "to amass treasure; to store up for the future" but was used also in the figurative sense as "regard as precious, retain carefully in the mind" from treasure.  The first recorded treasure hunt happened in 1913 a relatively modern alternative spelling was the now almost extinct treasuer.  Treasure is a noun & verb, treasurable & treasureless are adjectives, treasury, treasurership, treasuress & treasurer are nouns, treasuring is a verb and treasured is a verb & adjective; the noun plural is treaures.

The noun treasurer was from the late thirteenth century, from the Old North French & Anglo-French tresorer & and the Old French tresorier, from tresor.  The noun treasury (a room or vault in which to store and safeguard treasure) dates from circa 1300, from the eleventh century Old French tresorie (treasury), from tresor.  The meaning "department of state that controls public revenue" was recorded from late the late fourteenth century and the first treasury bill was issued in 1797.  An Old English word for "room for treasure" was maðm-hus and for "treasury", it was feo-hus (connected to the modern fee).  There is a connection with the noun hoard, from the Old English hord (a treasure, valuable stock or store, an accumulation of something for preservation or future use and hence "any mass of things preserved by being deposited together," from the Proto-Germanic huzdam (source also of Old Saxon hord (treasure, hidden or inmost place)).  It was cognate with the Old Norse hodd, the German Hort and the Gothic huzd (treasure; literally "hidden treasure"), from the primitive Indo-European root (s)keu- (to cover, conceal).

T-Paper

US Treasury Building, Washington DC.

T-paper (Treasury-paper) is the collective term for securities issued by United States Treasury.  The US Treasury Department sells bills, notes, and bonds at auction with a fixed interest rate.  When demand is high, bidders pay higher than face value to receive the interest rate.  When demand is low, they pay less, thus the yield declines as the price rises; at times of crisis, yield drops as investors seek security at the expense of income.  T-paper gained the name from being once issued on physical paper or cardboard) but are exist in now digital form and are also referred to as “Treasurys”.

1864 US $100 three-year treasury note (6% annual interest rate, compounded semi-annually, payable at maturity); a bearer-bond, paid over-the-counter, to whomever held the physical paper.  

Although physical paper is no longer much associated with T-paper, a linguistic legacy persists in the “coupon stripping” market.  There’s long been a secondary market for T-paper, one flavor of which is where the interest and principal components have been separated, or "stripped" so they may be re-sold as separate products.  The name is derived from the days of paper and cardboard when traders literally would separate the paper interest coupons from the paper securities.  In the secondary market, the two pieces of paper than became independent retail items, one yielding interest, the principal re-sold as a zero-coupon bond.  The correct name in the digital age is Separate Trading of Registered Interest and Principal Securities (STRIPS).  STRIPS, more than some other products, reflects the dual role of the Treasury as both regulator and participant in the financial gambling market, not itself an issuer of STRIPS (that part of the market reserved for brokers and the non-retail arms of banks), instead the maintaining the transaction and ownership register.

1976 US $5000 ten-year treasury note with 8% rate.

The difference in types of T-Paper are defined by the length of the term: the time until the bond the matures at which point it is repaid.  All T-paper are really bonds, the nomenclature just part of the jargon of the industry.  Treasury Bills are issued for less than a year, Treasury Notes for 2, 3, 5, and 10 years and Treasury Bonds for 30 years.  Still unconfirmed is whether recent discussions by Treasury about longer-term bonds will be pursued although demand seemingly exists, fifty and even hundred-year bonds mentioned.  There has been speculation about the demand which, given the amount of money said now to be “sloshing around” the system, wasn’t unexpected and the large holdings of various sovereign wealth funds may also find the longer terms attractive, for reasons political as well as fiscal.  It anyway represents one school of thought on what to do about the money supply. 

A more recent creation is the Treasury Inflation-Protected Security (TIPS), bond, the principal of which is indexed against inflation using the Consumer Price Index (CPI).  As the CPI rises, the principal is adjusted upward; if the index falls, the principal is adjusted downwards, the coupon rate remaining constant, but generating a different amount of interest when multiplied by the inflation-adjusted principal.  This has the effect of protecting the holder against the inflation rate as measured by the CPI.  The current version of TIPS was created in 1997 and is offered with five, ten and thirty year maturities.

Spikes and waves:  US T-Note yield against inflation projections and outcomes with events noted, 2000-2020.

Inflation-indexed bonds became common in government bond markets in the late twentieth century, many emerging in the inflationary environment which followed (1) the distortions in US government spending the 1960s, (2) the structural changes to the Bretton-Woods system in the 1970s  and (3) the consequences of the oil shocks in the same decade; they’re essentially a form of hedging.  In the orthodox bond market, even those issued for long terms promise the holder a fixed dollar (or whatever currency) income flow for the term of issue.  That contrasts with the outgoings of an individual or corporation because prices tend quickly to adjust to external changes and unexpected changes can increase the general level of prices, altering the real purchasing power of money which is a risk to both holders and issuers of orthodox bonds.  The indexed bond substantially reduces this risk in that the lender’s receipts and the borrower’s payments become linked to movements in the general price level.

Lindsay Lohan attending the LA premiere of Treasure Planet, Cenerama Dome, Hollywood, California, November 2002.

Again, while used as a hedge, it is still a gambling market, the incentive for governments, beyond the political attractions of being able to offer the product, being the ability substantially to reduce borrowing costs  The UK government first issued indexed bonds in 1981 as a part of an attempt to reduce (it was actually an attempt to kill) inflation.  The markets however had noted the post-war performance of successive governments and were sceptical, holders of orthodox bonds, in effect, charging the government on the basis of an inflation rate substantially higher than the government intended the outcome to be.  This is how gambling works.  In issuing indexed bonds, simultaneously the government flagged a new seriousness in monetary policy and an intent to reduce funding costs by promising to compensate investors for high inflation only if inflation did not fall.  Unexpectedly, the government’s strategy proved successful and substantial savings in borrowing costs were realised.  The effect of the increase in the money supply induced by the COVID-19 responses will ultimately produce higher inflation because, unlike the restorative measures in the wake of the global financial crisis (2008-2011) which essentially gave money only to the rich, greater disposable income was gained more widely.  If the inflation is sustained or (in response to new, unexpected events) spikes, New Zealand's approach (which included products actually marketed as "inflation-proof bonds") might be re-visited.   

The New Zealand experience was different but the small size of the market, while making it an interesting and manageable thing for modelers and analysts, does mean caution must be taken if attempting to apply that experience at scale.  The NZ government issued inflation-adjusted government securities between 1977-1985 and, in a period of historically high inflation, they were popular, eventually accounting for some 15% of domestic debt on issue.  Post-war NZ had evolved into what is possibly the West’s most extreme example of an open political system being combined with a highly regulated economy and that did tend to work until the convulsions of the 1970s to which the NZ hybrid proved unable to adjust.  The adjustments were made after a change of government in 1984 and the inflation adjusted bonds offered by tender in 1983-1984 entered a market where the official inflation target was considerably lower than the buyer’s expectation.

New Zealand Consumer Price Index (CPI) 1970-2015.

Almost immediately, the new government ceased issuing indexed debt.  Perhaps paradoxically, the same credibility gap confronted the government in its own use of more orthodox methods to cut inflation.  Because it was expected the costs of selling long-term nominal bonds would be high, in 1986, issues longer than five years were suspended, the government making clear that would prevail until their inflation target had been met or exceeded.  The approach, while textbook correct, wasn’t without risk because, although shortening the term of a government’s nominal debt can be an appropriate response where inflation outcomes are uncertain, it does heighten the risk of higher costs when rolling-over maturing debt.  As it turned out, for one reason and another, some fairly brutal, inflation was tamed and in 1995, the government returned to the index-linked market.  Many countries created markets, Finland and some of the Nordic zone as early as 1945 and Israel ten year later.  A cluster of Latin American countries issued between 1964-1972 and a number of OECD nations followed the New Zealand and UK in the 1980s although the US Treasury wasn’t active until 1997.