The biggest price swings in Treasury bonds this year are undermining Federal Reserve Chairman Ben S. Bernanke’s efforts to cap consumer borrowing rates and pull the economy out of the worst recession in five decades.
Government bond yields, consumer rates and price swings are increasing as the Fed fails to say if it will extend the $1.75 trillion policy of buying Treasuries and mortgage bonds through so-called quantitative easing, traders say. The daily range of the 10-year Treasury yield has averaged 12 basis points since March 18, when the plan was announced, up from 8.6 basis points since 2002, according to data compiled by Bloomberg.
“Volatility has increased dramatically and it seems to get more each day,” said Thomas Roth, head of U.S. government-bond trading in New York at Dresdner Kleinwort, one of the 16 primary dealers of U.S. government securities that trade with the Fed. “A lot of that has to do with uncertainty about whether the Fed will increase purchases of Treasuries. The market is looking for some change in the Fed’s plan.”
The deficit should reach $1.85 trillion in the fiscal year ending Sept. 30 from last year’s $455 billion, according to the Congressional Budget Office. Goldman Sachs Group Inc., another primary dealer, estimates that the U.S. may borrow a record $3.25 trillion this fiscal year, almost four times the $892 billion in 2008.
Investors are reining in the average maturity of their Treasury holdings to guard against higher yields. That may increase costs for the government, which intends to extend the average maturity of its debt after committing $12.8 trillion to thaw frozen credit markets and snap the longest economic slump since the 1930s. The Treasury will sell $65 billion in notes and bonds this week.
Inflation is here faster than I thought. You have to say thank to Obama's spending.
06-09-2009 03:40 PM
Putting On My Moderator's Hat
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