Posted on 5/31/2009, 11:11:11 PM by traumer
WASHINGTON (Reuters) - The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession.
But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.
Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries.
Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases.
Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities.
With officials still grappling to divine the factors steepening the yield curve, a speedy decision on whether to ramp up the Treasury debt purchase program or the related plan to snap up mortgage-related debt seems unlikely.
"I'm in wait-and-see mode," said one Fed official who spoke on the condition of anonymity. "We laid out the asset purchase plan and we're following it. That is going to have some affect on various interest rates, but together with a hundred other things. So I don't think we should be chasing a long-term interest rate," the official said.
(Excerpt) Read more at reuters.com ...
It means that there are a lot of people betting that the Obama era will be short lived.
No one wants to be holding them when the prime rate hits 21%?
“It means that there are a lot of people betting that the Obama era will be short lived.”
That’s a bad bet. The MSM will nurse him along as much as required. He’ll do 4 just fine, and I strongly suspect he’ll get a 2nd term.
Wow! Maybe some of the big investors are beginning to GET it! Government is just plain stupid here...
It means that the world believes that we are the reincarnation of the Weimar Republic, DUH!
Come again? I reach exactly the opposite conclusion. The market.. and I.. see quantitative easing as a pretty name for money printing currency debasement. Of course the price of those assets is going to trend downward, which means they bear higher interest rates. Doing more of the same will eventually make the problem worse.
Door Number Two, Monty!: "the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency"
I wouldn't buy a "10-minute Treasury Bond" at this point, never mind tying up my money for 30 years or ten years. In fact, I'm doing the opposite: I'm busting my ass to buy a house so I'll be paying my housing costs for the next thirty years in hyperinflated "dollars".
Puzzled? The “gig” is up on the biggest financial scam ever perpetrated in the history of mankind... The creation of the Federal Reserve and the multi-generational bankruptcy of America.
Alex, that would be “What happens when more and more investors start betting against the dollar?”
There is nothing the Fed can do about it. The baby-boomers are retiring in droves and they will be spending far less money for goods and services. There are not enough echo-boomers to keep the party going. Look for a short term market rally into this Summer, then a big long term crash starting in the Fall.
As predicted Harry Dent, in ‘The Coming Great Depression”
Interesting read
On that note, perhaps in five years or so there will be a glut of hardly used guns for sale in the gun shops.
That and the opposite problem: when the dollar goes to 0.25EU.
Mr. President, did you want to repeat that "we're out of money," just in case nobody understood?
http://www.moneymorning.com/2009/05/28/government-bonds-not-safe/
I don’t really understand all this, but I saw this yesterday. Maybe it will be meaningful to some of you.
Meanwhile, if anyone can recommend a Financial Education for Dummies book, I’d appreciate it.
Either the writer is just lying or the people running the Fed are complete idiots. It can't be both so I'm betting that the Fed knows very well what is going on here:
Short term interest rates are low because there is still enough fear in the market that people cling to the security of knowing that they will not lose capital. Short term treasuries provide that assurance. When the bonds come due they will be paid in full. Guaranteed. Very safe.
Long term bonds are another story. The market is telling the Fed that it anticipates future inflation and expects a higher yield or it won't purchase Treasuries. It's that simple. As the threat of inflation grows, as it certainly will in the coming months and years, you can be sure that the yield demands for long term Treasuries will rise at the same pace.
Interesting read.
I know nothing about the market; but I would be Soros is somewhere in the background undercover.
bet Soros is in there.
But the Fed is not really sure what is driving the sharp rise in long-dated bond yields...
If that were so, then it's filled with idiots that need assistance to feed themselves...
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