Tags: bonds | Case | Treasurys | treasuries

Dark Clouds Outnumber Silver Linings for Treasurys

By Dan Weil   |   Tuesday, 24 May 2011 08:30 AM

The rally in Treasurys seems interminable, with the 10-year yield at 3.15 percent Friday, down from 3.75 percent in February. But the bull market may finally be ending, writes Jason Zweig of The Wall Street Journal.

A major immediate issue is the government’s $14.3 trillion debt limit.

Treasury Secretary Tim Geithner says the government will default on its debt unless Congress lifts the ceiling.

geithnergtty200left.jpg
Treasury Secretary Tim Geithner
(Getty Images photo)
That has some investors worried. Daniel Fuss, a bond fund manager at Loomis Sayles tells the Journal that when he talks to foreign customers, they ask, "What's going on? Why can't (the United States) get your act together?"

Default isn’t likely, but “financial repression” is. That’s the term used by economist Carmen Reinhart of the Peterson Institute for International Economics to describe ways for governments to escape their debt burdens without default.

One technique is for the Federal Reserve to keep short-term interest rates below the level of inflation, so that the Treasury is paying back creditors with devalued money. The government can also use regulations to force financial companies to buy Treasurys.

Given all that, individuals would do well to steer clear of long-term Treasurys, Zweig argues.

To be sure, at the moment Treasurys have several supporting factors. Larry Milstein, managing director of R.W. Pressprich & Co., cites several to Bloomberg: “global sovereign risk out of Europe, the Fed that is still buying and a clearer picture of the economy that shows it is beginning to stumble.”


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The rally in Treasurys seems interminable, with the 10-year yield at 3.15 percent Friday, down from 3.75 percent in February. But the bull market may finally be ending, writes Jason Zweig of The Wall Street Journal. A major immediate issue is the government s $14.3...
bonds,Case,Treasurys,treasuries
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2011-30-24
 

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