Tweet
The Treasury Department, seeking new ways to help fund its budget deficit, is likely to announce on Wednesday a plan to ramp up sales of inflation-protected bonds, according to people familiar with the matter.
China, the largest holder of U.S. government debt, is among investors that have indicated to the Treasury that they want to buy more of the securities, which offer protection against rising inflation, the people said.
Officials from the U.S. and China discussed TIPS issuance at high-level talks in Washington last week. U.S. officials assured their Chinese counterparts that they remained committed to TIPS sales, according to a person with knowledge of the discussions. China has accumulated more than $2 trillion in foreign-exchange reserves and has invested about $800 billion in Treasurys.
Boosting issuance of TIPS would be one tool the Treasury could use as part of its broader debt-sales program. The government will have issued a record $1.8 trillion of debt in the 12 months through September, most of which was debt that pays a fixed interest rate, unlike TIPS, which pay out more as inflation accelerates. Auctions last week of two-year and five-year fixed-rate securities were surprisingly weak, a reminder that robust demand for such unprecedented bond issuance is far from guaranteed.
...
China, the largest holder of U.S. government debt, is among investors that have indicated to the Treasury that they want to buy more of the securities, which offer protection against rising inflation, the people said.
Officials from the U.S. and China discussed TIPS issuance at high-level talks in Washington last week. U.S. officials assured their Chinese counterparts that they remained committed to TIPS sales, according to a person with knowledge of the discussions. China has accumulated more than $2 trillion in foreign-exchange reserves and has invested about $800 billion in Treasurys.
Boosting issuance of TIPS would be one tool the Treasury could use as part of its broader debt-sales program. The government will have issued a record $1.8 trillion of debt in the 12 months through September, most of which was debt that pays a fixed interest rate, unlike TIPS, which pay out more as inflation accelerates. Auctions last week of two-year and five-year fixed-rate securities were surprisingly weak, a reminder that robust demand for such unprecedented bond issuance is far from guaranteed.
...
The Treasury selling more TIPS sounds pretty crazy. It could take inflating the debt away off the table. This leaves only 2 options, one being default.
There's been a lot of discussion on iTulip on whether we will follow the Japan path or the Argentina path. I think the President, Summers, and Geithner have been hinting we might follow the California path. Selling more TIPS seems like a signal they are not heading for big inflation. Instead of Poom, maybe we are heading for another massive KA where the government bites the bullet and slashes it's budget while increasing taxes.
Comment