Update on Treasury Borrowing and Fed Monetization

[ASH]

This is from CNN Money:

...the U.S. government has been issuing new debt at a breakneck pace to fund economic recovery efforts. That increased supply continues to weigh on prices.


At the same time, the government is buying back Treasurys in an effort to stimulate demand and keep yields in check. The Fed bought $7.4 billion worth of debt Thursday as part of its $300 billion buyback program. On Wednesday, the Fed bought $7.7 billion in debt maturing between February 2016 and May 2019.

The Treasury said Thursday that it will auction $40 billion in 2-year notes, $35 billion in 5-year notes, and $26 billion in 7-year notes next week. The $101 billion was slightly less than what some economists had predicted, but nonetheless served as a reminder of the volume of debt in the pipeline.

...

The benchmark 10-year note fell 1-8/32 to 98-5/32, and its yield rose to 3.35% from 3.19% late Wednesday. Bond prices and yields move in opposite directions.

The 30-year bond sank 2-19/32 to 99-4/32, and its yield rose to 4.3% from 4.16%.

The 2-year note edged down 1/32 to 100-2/32, and its yield rose to 0.86% from 0.82%.

The yield on the 3-month note held steady at 0.18%.

[Guest]

Re: Update on Treasury Borrowing and Fed Monetization

Quite dramatic move down in the dollar in the past few days.

[Mega]

Re: Update on Treasury Borrowing and Fed Monetization

Don't worry.............the £ will beat it to "Ground Zero".
Mike

[cjppjc]

Re: Update on Treasury Borrowing and Fed Monetization

I don't really get this part:


At the same time, the government is buying back Treasurys in an effort to stimulate demand and keep yields in check. The Fed bought $7.4 billion worth of debt Thursday as part of its $300 billion buyback program. On Wednesday, the Fed bought $7.7 billion in debt maturing between February 2016 and May 2019.



So the Fed IS part of the government?

[ASH]

Re: Update on Treasury Borrowing and Fed Monetization

I don't really get this part:


At the same time, the government is buying back Treasurys in an effort to stimulate demand and keep yields in check. The Fed bought $7.4 billion worth of debt Thursday as part of its $300 billion buyback program. On Wednesday, the Fed bought $7.7 billion in debt maturing between February 2016 and May 2019.



So the Fed IS part of the government?

Not technically, but for most practical purposes.

[cjppjc]

Re: Update on Treasury Borrowing and Fed Monetization

I understand that. It would be nice if the people who bring us our news understood it. The amount of QUALITY journalism is so low, as to be almost unmeasurable.

[metalman]

Re: Update on Treasury Borrowing and Fed Monetization

This is from CNN Money:

...the U.S. government has been issuing new debt at a breakneck pace to fund economic recovery efforts. That increased supply continues to weigh on prices.


At the same time, the government is buying back Treasurys in an effort to stimulate demand and keep yields in check. The Fed bought $7.4 billion worth of debt Thursday as part of its $300 billion buyback program. On Wednesday, the Fed bought $7.7 billion in debt maturing between February 2016 and May 2019.

The Treasury said Thursday that it will auction $40 billion in 2-year notes, $35 billion in 5-year notes, and $26 billion in 7-year notes next week. The $101 billion was slightly less than what some economists had predicted, but nonetheless served as a reminder of the volume of debt in the pipeline.

...

The benchmark 10-year note fell 1-8/32 to 98-5/32, and its yield rose to 3.35% from 3.19% late Wednesday. Bond prices and yields move in opposite directions.

The 30-year bond sank 2-19/32 to 99-4/32, and its yield rose to 4.3% from 4.16%.

The 2-year note edged down 1/32 to 100-2/32, and its yield rose to 0.86% from 0.82%.

The yield on the 3-month note held steady at 0.18%.

1st downgrade japan.

then downgrade uk.

next downgrade usa?

are ratings downgrades the modern equivalent of beggar thy neighbor devaluations?

[ASH]

Re: Update on Treasury Borrowing and Fed Monetization

1st downgrade japan.

then downgrade uk.

next downgrade usa?

are ratings downgrades the modern equivalent of beggar thy neighbor devaluations?

Seems to me that it can't be beggar-thy-neighbor, exactly, since it is the rating agencies who would do the downgrading. Even assuming that the rating agencies aren't independent of political pressure, I presume they are only subject to pressure from their host country, which means that not all parties have the means to participate in a true beggar-thy-neighbor dynamic. If there was competition going on through this mechanism, I would think it might be competition to sell sovereign bonds in a soon-to-be saturated market, in which case the objective would be to get other countries downgraded (to capture their share of demand for AAA sovereign bonds) as opposed to getting yourself downgraded to achieve currency devaluation. I guess this is the underlying tension between wanting moderately high inflation and a fairly weak currency to help pay off debt, and the need to borrow large sums of money in order to stimulate and bail. Could be the fiscal pressures are so strong that the need to borrow will be the driving force.

I hesitate to extrapolate too far from too little data over too short a time, but I think the talk of downgrades are evidence of what EJ told us to expect, which is the dawning realization that we (and the UK, and Japan, etc.) might not be a very good credit risk. Japan without a current account surplus doesn't look so hot. The UK running a fiscal policy that looks American, but without our advantages, also looks iffy. Makes sense to me that borrowers in weaker positions will get flagged first.

[vinoveri]

Re: Update on Treasury Borrowing and Fed Monetization

1st downgrade japan.

then downgrade uk.

next downgrade usa?

are ratings downgrades the modern equivalent of beggar thy neighbor devaluations?

right-on; once every country is downgraded from AAA to AA, then AA is the new highest standard (hey there's nothing else to invest in but the "full faith and credit" of the least amongst the banana republics. It's a global fiat world that is looking more and more like a one world currency play (NWO conspiracy nuts beware).
Remember all these special swaps the fed is doing with foreign central banks...WTF.

Good time for a net commodity-exporting country to tie it's currency to its commodities - and attempt to get some respect

[metalman]

Re: Update on Treasury Borrowing and Fed Monetization

right-on; once every country is downgraded from AAA to AA, then AA is the new highest standard (hey there's nothing else to invest in but the "full faith and credit" of the least amongst the banana republics. It's a global fiat world that is looking more and more like a one world currency play (NWO conspiracy nuts beware).
Remember all these special swaps the fed is doing with foreign central banks...WTF.

Good time for a net commodity-exporting country to tie it's currency to its commodities - and attempt to get some respect

huh.. and gold at $953 on the news. such a surprise.

[ASH]

Re: Update on Treasury Borrowing and Fed Monetization

right-on; once every country is downgraded from AAA to AA, then AA is the new highest standard (hey there's nothing else to invest in but the "full faith and credit" of the least amongst the banana republics. It's a global fiat world that is looking more and more like a one world currency play (NWO conspiracy nuts beware).
Remember all these special swaps the fed is doing with foreign central banks...WTF.

Good time for a net commodity-exporting country to tie it's currency to its commodities - and attempt to get some respect

That matches the theme of coordinated devaluation quite well, but I would be very surprised indeed if this period of history results in greater international cooperation. Crisis brings national interest to the fore, and it is not in America's national interest to lose dollar hegemony. I personally think the odds are better that we'll see a fracturing of the international system result from this crisis, than a consolidation. The cooperation thus far -- such as it is -- won't prove durable if the crisis deepens.

[charliebrown]

Re: Update on Treasury Borrowing and Fed Monetization

if s&p says they are going to down grade U.S. debt to AA do they get the Obama phone call? If the debt is down graded to AA are there certain instutions such as pension funds etc, that are contractually obligated to only hold AAA debt thus they have to dump it.

Will McDonald's corp debt be rated higher than treasuries?

[ThePythonicCow]

Re: Update on Treasury Borrowing and Fed Monetization

So the Fed IS part of the government?

I thought it was the other way around - the government was part of the Fed. Didn't an esteemed US Senator recently state that the Banks "owned" Washington? :rolleyes::rolleyes:.

[coolhand]

Re: Update on Treasury Borrowing and Fed Monetization

My understanding is that there has always been an implicit (or explicit) rule of thumb that no company can have a higher credit rating than the country in which it is domiciled.

If the US were downgraded, & that rule held, MCD would have to be downgraded as well.

Not that big a deal per se - but i would think GE Capital (which I might still be AAA-rated?), would have to as well - taking funding costs up going forward.

Any thoughts out there?

[WildspitzE]

Re: Update on Treasury Borrowing and Fed Monetization

My understanding is that there has always been an implicit (or explicit) rule of thumb that no company can have a higher credit rating than the country in which it is domiciled.

Yes, and no. As a rule of thumb or quick rule, yes, one typically doesn't see companies have a higher rating than the country (their domiciled in) itself - it's commonly known as the sovereign ceiling or sovereign constraint.

That said, certain companies can and do have higher ratings than the sovereign that there in, based on several factors including where the source of their business is (e.g. a multinational with huge international operations outside of the main country).

An example would be Petrobras.

Forgot to add (last minute edit here): Here's the biggie - on an international scale (as opposed to the local scale where the sovereign has a AAA even if on an international scale it is BBB), ALL ratings would be adjusted up or down in accordance with the adjustment to the sovereign. Not just those that are at the AAA level.