The Trouble With Treasuries

Discussion in 'Economy' started by boedicca, Mar 27, 2010.

  1. boedicca
    Offline

    boedicca Uppity Water Nymph Supporting Member

    Joined:
    Feb 12, 2007
    Messages:
    41,771
    Thanks Received:
    12,765
    Trophy Points:
    2,250
    Location:
    The Land of Funk
    Ratings:
    +22,715
    The demand for U.S. Treasuries is becoming "problematic".

    Investors are demanding higher interest rates because of the huge, and in the future, even "huger" increases in federal spending. Interest on the debt is going to swamp discretionary spending. ObamaCare just got more expensive.

    Happy Happy Joy Joy.

    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.

    Chart: TreasuriesFalling 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.

    Worries about the debt loads of developed economies have come into focus this year amid the crisis threatening Greece and other members of the eurozone periphery...



    FT.com / Capital Markets - Supply fears start to hit Treasuries
     
  2. georgephillip
    Offline

    georgephillip Gold Member Supporting Member

    Joined:
    Dec 27, 2009
    Messages:
    26,428
    Thanks Received:
    1,265
    Trophy Points:
    215
    Location:
    Los Angeles, California
    Ratings:
    +2,039
    Are "bond vigilantes" or hedge funds or private equity firms compatible with democracy?

    If private investors of all types form a "virtual senate" capable of vetoing any and all legislation that might roll back the wealth gap in this country, how long before 90% of Americans are left with nothing left to lose?
     
  3. Neubarth
    Offline

    Neubarth At the Ballpark July 30th

    Joined:
    Nov 8, 2008
    Messages:
    3,751
    Thanks Received:
    199
    Trophy Points:
    48
    Location:
    South Pacific
    Ratings:
    +199
    If any organization is capable of manipulating the environment of the investment field they should be banned from such activity.

    When I was a far younger man, the Hunt Brothers were involved in buying up silver reserves and then trying to manipulate the price upwards. Luckily their efforts were not rewarded and they lost money. Today, Goldman Sachs has a computer operated program that can rapidly trade stocks back and forth between their various investment funds and in thus doing they can raise the stock market as much as fifty points on the DOW in about 23 minutes. (It depends upon the volume of the trading day.) That should have been outlawed when they first started bragging about it. They can take derivative positions that they can guarantee the outcome of. That is wrong, but nobody is doing anything about it. It is time that the people rise up and put a stop to that because the corrupt government continues to look the other way.
     
  4. william the wie
    Offline

    william the wie Gold Member

    Joined:
    Nov 18, 2009
    Messages:
    7,263
    Thanks Received:
    672
    Trophy Points:
    175
    Ratings:
    +1,602
    If you want to buy treasuries buy them. The real interest rate on treasuries is negative. There is no conspiracy just a lot of people saying, "I can get much better risk adjusted real returns elsewhere."

    Until and unless there is a real commitment to eliminating the national debt why buy treasuries when a diversified portfolio of munis offer higher aftertax returns? Why buy treasuries when German Lander bonds will most likely pay better. Why buy treasuries when you can buy TIPS from the same lender?
     
  5. georgephillip
    Offline

    georgephillip Gold Member Supporting Member

    Joined:
    Dec 27, 2009
    Messages:
    26,428
    Thanks Received:
    1,265
    Trophy Points:
    215
    Location:
    Los Angeles, California
    Ratings:
    +2,039
    Is our National Debt the result of paying interest on the money we borrow from the Federal Reserve?
     
  6. georgephillip
    Offline

    georgephillip Gold Member Supporting Member

    Joined:
    Dec 27, 2009
    Messages:
    26,428
    Thanks Received:
    1,265
    Trophy Points:
    215
    Location:
    Los Angeles, California
    Ratings:
    +2,039
    Huey Long saw the "corrupt government" of his time as a restaurant that served only one dish.

    There are Republican waiters along one wall, and Democrat waiters lining the other.
    But no matter which party delivers your order..."all the grub comes from Wall Street's kitchen."

    Goldman Sachs success depends on voters limiting their "choice" to Republican OR Democrat.

    The Internet makes it possible to FLUSH Republicans AND Democrats from Congress on November 2nd BECAUSE both parties serve Wall Street interests first.

    Replace 100 (200?) current House members with a pool of fresh legislators that's 75% to 90% non-Republican OR Democrat, and we'll all see what Obama and Wall Street are made of.
     
  7. Neubarth
    Offline

    Neubarth At the Ballpark July 30th

    Joined:
    Nov 8, 2008
    Messages:
    3,751
    Thanks Received:
    199
    Trophy Points:
    48
    Location:
    South Pacific
    Ratings:
    +199
    Nope. Our national debt is the result of borrowing money, period. We pay interest to the people who lend us the money. ONLY one entity does not collect that interest, and that is the FED. We should only borrow from them.
     
  8. georgephillip
    Offline

    georgephillip Gold Member Supporting Member

    Joined:
    Dec 27, 2009
    Messages:
    26,428
    Thanks Received:
    1,265
    Trophy Points:
    215
    Location:
    Los Angeles, California
    Ratings:
    +2,039
    From Harper's Index April 2010 print edition:

    Total profits earned by the US Federal Reserve Bank last year: $46,100,000,000.

    From where do these profits arise?
     
  9. Paulie
    Offline

    Paulie Platinum Member

    Joined:
    May 19, 2007
    Messages:
    31,499
    Thanks Received:
    4,842
    Trophy Points:
    1,130
    Ratings:
    +15,309
    From interest on loans it makes to institutions, and interest earned on bonds they've previously purchased.

    Those profits are returned to the US Treasury.
     
  10. georgephillip
    Offline

    georgephillip Gold Member Supporting Member

    Joined:
    Dec 27, 2009
    Messages:
    26,428
    Thanks Received:
    1,265
    Trophy Points:
    215
    Location:
    Los Angeles, California
    Ratings:
    +2,039
    The Fed does create money to buy US Treasury debt, and Treasury does pay interest to the Fed on this debt.

    The Fed then repays the Treasury after deducting operating expenses.

    In 2008 the Fed kept about $4 billion.

    The Fed functions "...as the enforcing arm of a huge cartel and lender of last resort to the largest banks...this is the heart of the Federal Reserve System's function. It protects the largest banks. It always has."

    "It restricts entry into the field. This is another feature of every cartel: government restricted entry. This protects above market returns for members of the cartel."

    See:Campaign for Liberty>The Fed Repays the Treasure Most Interest it Collects from Treasury by Gary North (9/4/09)
     
    Last edited: Mar 29, 2010

Share This Page