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| $67B Treasury Auction - Ouroboros Begins To Eat Own Tail |
| 2009-02-07 |
| Following yesterday's quarterly refunding announcement by the U.S. Treasury, investment banks will be working the telephones hard to find clients to buy the record $67 billion worth of new Treasury securities scheduled to be auctioned, starting next week. Just over half the total amount ($36.3 billion) is needed to repay existing notes and bonds that are set to mature; the remainder ($30.7 billion) is new borrowing needed to cover the cost of bank rescues, fiscal stimulus and the deficit in the regular budget. The refunding portion should be relatively simple, since the money that needs to be raised is matched by the amount of funds investors will be receiving back from the government as old debts mature and are repaid. Refunding involves persuading investors to re-invest maturing funds into new securities. Only the price/yield is an issue, albeit a thorny one. New borrowing will be more challenging because it involves attracting additional funds into the Treasury market. The risk/return characteristics of Treasury debt are not particularly attractive at present. The interest rate cycle is close to the trough, yields are at multi-decade lows, and risks to investors from both the rate cycle and inflation are probably concentrated on the upside. The Fed has talked about buying longer-dated Treasury securities in an attempt to create a "buyer of last resort" to guarantee investors a floor under the market. But buying an instrument that has limited upside capital potential, and where mitigation of downside capital risk depends on the Fed's uncertain willingness and ability to buy unlimited quantities if the price falls too far, is probably not attractive for most investors. Some commentators have suggested that the normal role of benchmark U.S. Treasury bonds providing "riskless returns" has been inverted and they now provide returnless risks. So the investment banks may find it hard to find customers for the new issues. |
| Posted by:Anonymoose |
| #5 So this is something like a savings bond, ten bucks now will get you 15 in ten years? (Or whatever) That, I can understand. |
| Posted by: Rednek Jim 2009-02-07 22:31 |
| #4 It is my understanding that recent Treasury sales have been oversubscribed at a ratio of 4:1, that is (if I understand correctly), there are four who want to buy for every one offered. Given that money flows to comparatively more reward or comparatively less risk, it is understandable that US Treasuries would be desirable: the U.S. government is considerably less likely in the near future to default than Iceland, Venezuela, or Britain. Japanese debt is perhaps a safer option, but they aren't capable of making available nearly as much to investors, I think. |
| Posted by: trailing wife 2009-02-07 21:49 |
| #3 I'm sorry, I just don't get it, they're selling money to raise more money? No, they're selling the labor, the sweat and skills and enterprise, of us, our children and grandchildren to be turned over to the highest bidder who'll buy a bond, as in bondage. We are being sold literally into bondage to raise money so that those who have attained power can reward their backers and themselves. Done without the facade of government, at the least its embezzlement, at worst its slaving. All of course done in the name of whatever self rationalization the snake oil salesmen think they can get away with which usually involves scaring people into dumbness. |
| Posted by: Procopius2k 2009-02-07 21:11 |
| #2 No, printing inflation to hide negative returns, i.e. loses. |
| Posted by: Bright Pebbles the flatulent 2009-02-07 19:53 |
| #1 I'm sorry, I just don't get it, they're selling money to raise more money? |
| Posted by: Rednek Jim 2009-02-07 19:19 |