Wednesday, 29 April 2009

Huge supply weighing on 30 Year Treasury Bonds


Supply is weighing heavily on the U.S. Treasury market and yields across the spectrum moved up yesterday. This was especially noteworthy at the long end of the yield curve as the 30 year bond yield moved up to levels not seen since last November.

Closing with a yield just below 4% the chart above shows that a large gap from November 19th could be in the process of being filled with a move back above the four percent threshold. This will add further concerns for the Fed and the US Treasury about their continued ability to navigate their way through the massive re-funding operations that are now required to finance the deficit and structural US public debt.

Monitoring the action in the Treasury complex will be at the top of many investors' agenda in the next couple of weeks as further evidence of deficient demand for the more than $70 billion worth of new securities to be auctioned would be a worrying development for the policy mentors, especially Larry Summers who appears to be the most optimistic about steering the massively subsidized recovery through a benign interest rate environment.

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