10-year Treasury yield raises to 4% due to sloppy auction
It can not be a good sign when fixed income trader called the Treasury auction “sloppy”. With the 10-year at 4%, we can expect that the longer portion of the “yield curve” is going to steepen. This does not bode well for future interest rate which will need to go much higher to match future inflation expectations. With the amount of money that has been pumped into our economy through our banking system and with interests at historic lows, inflation is the obvious policy of the day.
News (Reuters):
U.S. Treasury prices fell on Wednesday, sending benchmark yields to 4.0 percent for the first time in eight months, after an auction of 10-year notes heightened concerns over the burgeoning U.S. budget deficit.
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Soaring U.S. Budget Deficit Will Mean Billions More in Bond Sales
This is going to get out of control over time unless we really start to reduce government spending or we are going to flood the market with dollars and it will make us have to make some very tough choices in the future which could include and official devaluation of our currency. Currently the jobs market is the biggest thing dragging down the U.S. economy. Credit availability is still a huge issue but even if that comes back, I am not sure if we would want that to flow back into the areas of the economy where a large part of the jobs have been lost (Finance, Real Estate and home construction).
News (Bloomberg):
Millions of lost jobs mean billions in lost tax revenue for the U.S. government, and billions in additional Treasury debt to fund a federal budget deficit that may soar to more than four times last year’s record $454.7 billion.
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Federal Reserve to Buy $300 Billion of Longer-Term U.S. Treasuries to monetize the debt
Wow, this rocked the markets, value of the dollar and gold bullion. This is a sign of bad things to come, we now have our central bank buying our debt to monetize it because our bailout policies have shaken the confidence of the foreign investors that would normally buy our debt. Unless we see a turn around soon, I think the dollar is now in its final decline. I am very worried about this development. Be Safe.
News:
The Federal Reserve opened a new front in its battle to bring down borrowing costs across the economy, pledging to buy as much as $300 billion of Treasuries and stepping up purchases of mortgage bonds.
The announcement following the Federal Open Market Committee meeting today in Washington spurred the biggest rally in longer-dated Treasuries in decades. Officials unanimously voted to expand the Fed’s balance sheet up to $1.15 trillion, and said they may broaden a program aimed at boosting consumer loans to include other assets, today’s statement showed.
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Warren Buffett says U.S. Treasury bubble one for the ages
With the fundamentals in place on the dollar, it does seem like we have a huge crowd of “safe haven” investors sitting on the sideline in cash waiting for some sign of a bottom, which may or may not be in the near future. I would say we are not close and we most likely see another bear market rally before we really start continue declines in the Dow and S&P. I am personally shorting treasuries in anticipation of a fall in the dollar after these record levels of debt issuance.
News:
Warren Buffett, whose Berkshire Hathaway Inc sits on $25.54 billion of cash, said worried investors are making a costly mistake by buying up U.S. Treasuries that yield almost nothing.
In his widely read annual letter to Berkshire shareholders, the man many consider the world’s most revered investor said investors are engulfed by a “paralyzing fear” stemming from the credit crisis and falling housing and stock prices. Treasury prices have benefited as investors flocked to the perceived safety of the “triple-A” rated debt.
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China losing taste for debt from U.S.
It is not just China that is losing their appetite for U.S. sovereign debt, its basically the whole world that is fed up. The world is not going to sit back with all its problems and fund us to be the consumers of the world. That is not the path to global prosperity.
You don’t have an island with a bunch of people with limited resources and then assign one guys jobs as the person who eats. It makes no sense and it won’t stand my spotlight or public opinion over time and that is what counts.
News:
China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers.
The declining Chinese appetite for United States debt, apparent in a series of hints from Chinese policy makers over the last two weeks, with official statistics due for release in the next few days, comes at an inconvenient time.
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Pimco limiting U.S. Treasuries exposure as supply builds
Good move on their part. With the amount of issuing that is going to take place over the next 12 months, I would not want to have too much into treasuries. Many economist are calling the dollar, “the next bubble to burst”. Now with President-elect Obama, he needs to get serious about creating jobs in our country.
I would say infrastructure in our highway system, transportation (rail) and energy should be his priority in reverse order. These type of projects are great for creating jobs. I would also do a mix of federal programs and private programs through our bidding process will be a nice balance. I think we are going to start seeing inflation pick up as soon as people start feeling more confident and that will be are next major crisis. You really notice inflation when the velocity of money speeds up through economic activity.
Release:
Fund manager Pimco is limiting its Treasury holdings amid expectations the United States will ramp up issuance to pay for a slew of new programs aimed at easing the credit crisis, Chief Executive Mohamed El-Erian told Reuters late Tuesday.
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China dumps $3 billion of US treasury bonds
Well there you go, the next leg of the dollar dropping is upon us. We can not run a trade and account deficit of this proportion and bailout the commercial banks, homeowners, investment bank, GSEs and expect foreigners keep keep funding our debt and consumption. All parties come to an end and I hope you have your chair reserved.
Release:
As of June, China held $503.8 billion worth of US treasury bonds, $3 billion less than in May, according to a report released by the US Department of the Treasury. This is the first time since February that China has cut its holding in the US government finance department.
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