The Trouble With Treasuries

[boedicca]

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

 

[georgephillip]

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?

 

[Neubarth]

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?

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.

 

[william the wie]

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?

 

[georgephillip]

Is our National Debt the result of paying interest on the money we borrow from the Federal Reserve?

 

[georgephillip]

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.

 

[Neubarth]

Is our National Debt the result of paying interest on the money we borrow from the Federal Reserve?

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.

 

[georgephillip]

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?

 

[Paulie]

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?

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.

 

[georgephillip]

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)

 

[Neubarth]

.

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)

Now you are starting to get the picture. The problem with the largest banks and their massive corruption is not in the FED's hands, though. It is in the hands of Congress, but they won't do a damn thing about the massive corruption that is allowed to run this country.

I have spoken to many of the militias and my message has always been the same. The government is not the enemy, it is corruption that is running the government. We need to kill the corruption, not a bunch of kid soldiers who are following orders to put down anti-government forces. The militias need to be Pro Government but strongly anti corruption. We need to take their efforts and turn them against Goldman Sachs and Chase and Bank of America and the rest. Take them down and forbid massive banks like that in the future. All of the executives of Goldman Sachs need to be marched before firing squads. We need to rid this nation of their plague.

All of the lies coming out of Washington about the economy are all initiated by Goldman Sachs and the other Big Banks. Obama bought into their program hook line and sinker. He has shown how totally corrupt he is and he needs to go. The sooner the better. We need men of total integrity in Washington to straighten this mess out.

 

[Oddball]

The Fed does create money to buy US Treasury debt, and Treasury does pay interest to the Fed on this debt.

Nice work, if you can get it.

You or I do that, and we go to prison for operating usury scam.

 

[boedicca]

It gets even better.

The Fed loans money to Big Banks at 0% interest.

The banks buy Treasuries (i.e., loan that money back to the government) and get paid nearly 4% interest. Big bonuses for virtually no risk.

Congress spends that boomerang debt and expands the size of government.

Public employee unions land more lukewarm bodies in chairs.

The losers: Taxpayers.

 

[georgephillip]

I'm starting to feel like one of the blind women and men circling the elephant.

Each of us feels a particular body part and comes to a unique conclusion about what the creature actually looks like.

Except this elephant is changing into T-Rex with a taste for human blood and treasure.

While we're debating abortion and gay marriage.

 

[Paulie]

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)

Dude...

If you're a Ron Paul supporter, PLEASE do the movement a favor and learn about the Fed and monetary policy.

It's the uninformed that end up creating a bad name for the movement by listening to the sensationalist bullshit that isn't true, and then go running around screaming about "the fed printed TRILLIONS of dollars, we're all gonna die of hyperinflation!!!".

Just an FYI...the Fed has created approximately 1 Trillion dollars since they started intervening in this current credit/banking crisis.

There's a huge difference between ONE trillion, and TRILLIONS.