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| Economy |
| Supply fears start to hit Treasuries |
| 2010-03-27 |
| The bond vigilantes are finally flexing their muscles. A long period of stability for the US government bond market showed signs of cracking this week as a lack of investor appetite for new debt sent the benchmark 10-year yield to its highest level since last June. For more than a year, analysts have been warning that record sized debt sales by the US Treasury were at odds with a 10-year yield sitting comfortably below 4 per cent. This week, the yield on 10-year notes jumped from 3.65 per cent to a peak of 3.92 per cent on Thursday. On Friday it was 3.87 per cent. Falling inflation, rising unemployment, the housing market slump, the Federal Reserve's policies of a near zero overnight borrowing rate and its purchase of up to $1,700bn in bonds have all helped keep Treasury yields near historic lows. But this week the mood shifted as yields for $118bn of new US debt were much higher than forecast, sparking overall selling of Treasuries. Sentiment also deteriorated in the UK bond market after the government's budget ahead of a general election expected in May failed to resolve doubts over future spending and debt reduction. The term "bond vigilantes" was coined in the 1980s when bond investors pushed up long-term yields to force central banks into taking action to curb inflation. This time, bond investors are less worried about inflation: they are fretting about huge fiscal deficits and the looming bond supply needed to finance them. "Everyone thought we would see rising rates due to higher inflation, but it appears the bond vigilantes are demanding a higher real rate due to concerns about Treasury issuance," says George Goncalves, head of fixed income strategy at Nomura Securities. |
| Posted by:Fred |
| #9 When this party ends there are going to be a lot more pi$$ed off people and buyers remorse about the last election. |
| Posted by: JohnQC 2010-03-27 22:36 |
| #8 JQC: artificially cheap money in the form of TARP and low interest rates. Washington has shoveled money at the banks, which in turn have built up their reserves and are not lending. At the same time, hedge funds have an artificially low cost of capital, which they have used to invest in stocks. Bubbles are fun while they last. The party will end soon enough. |
| Posted by: lex 2010-03-27 22:01 |
| #7 Bonds aside. I wonder what's propping up the stock market? The Dow closed out at about $10.8 K on Friday. Around here, foreclosures are still high. Companies are still laying off. We have some that are chronically unemployed. So far as I can tell the federal government is about the only entity employing. So unemployment has gone up since BO took over. And more and more cities and States are in the red. We are not producing much that I can tell. Businesses are kind of holding off doing anything because of the uncertainty coming from Washington. Health care is going to cost everone--individuals and businesses alike. BO's policies are definitely anti-business. So what is propping up the stock market and for that matter the economy? |
| Posted by: JohnQC 2010-03-27 21:12 |
| #6 "Bond vigilantes"? Cute usage by the Financial Times reporter. I seem to recall that China has significantly reduced their purchases of U.S. bonds, if not stopped purchasing completely. I think Japan had planned to do the same. Given a projection of federal government debt of at least 90% of GDP in a decade, I wouldn't be keen on betting on payback, either. |
| Posted by: trailing wife 2010-03-27 15:16 |
| #5 The world is waking up from it's bear market, economic doom mindset and is running out of appetite for <4 returns for ten years. |
| Posted by: Mike N. 2010-03-27 10:38 |
| #4 When the Treasury can't sell 10 year bonds, they turn around and buy the bonds themselves, in effect, printing money. So as a consequence, inflation is immediate rather than delayed with 'potential' amelioration by GDP growth in those ten years. When inflation hits, the routes to resolving it are to remove inflationary money from the economic system by raising interests rates, raising taxes, cut massive government spending, a combination of the previous, or going bankrupt. For socialist economists [yes, I know, its an oxymoron], the usual choice is the last one. |
| Posted by: Procopius2k 2010-03-27 09:26 |
| #3 Seeing as the majority voted for the adversary, I would not know what to replace it with. Karl marx, lenin, mkohammed, blah. Whatever My country wants before I move to one that has fiscal and government sanity. I so adore America and pray it may last for centurion notoriety.Yet I see little allowing the hard choices it takes to make it last for real. |
| Posted by: newc 2010-03-27 04:10 |
| #2 Don't you mean "replace 'G*d' with 'Allah'"? |
| Posted by: g(r)omgoru 2010-03-27 03:30 |
| #1 The only reason the dollar still fares well is because of the collapse of Greece and other EU signers that trash the currency ought right. The dollar is a lost paper currency with this print and spend mish mash of improper governance. By the way, you may as well take the imprint of "In God we Trust" off of American dollar currency now. |
| Posted by: newc 2010-03-27 03:21 |