Wanted: Treasury Buyers
The Fed has pledged to step in and buy Treasuries if necessary in order to keep long-term yields down to make credit affordable, resuscitate the housing market and support consumer spending. But as issuance is increasing and foreign demand for Treasuries decreasing, will the Fed be in the position to purchase Treasuries in a sufficient volume to keep rates down?
- The 2009 deficit is expected to top $1.2 trillion – almost three times larger than the previous record at $440b in fiscal 2008.
- China, which accounts for ~25% of foreign (and >5% of overall) Treasury ownership, shows decreasing interest in US government debt: its foreign reserves were reported as shrinking in December ’08 and are expected to increase by only $177b this year compared to $415b last year.
Is the Fed going to be able to keep yields at their compressed levels for an extended period of time? I’m not convinced.