Thursday, December 04, 2008
Getting our dollars back
The United States government is now able to borrow money at ridiculously low rates, notwithstanding the massive new commitments it has taken on since September. Five-year Treasury notes carry a yield of around 2%, and 30-year bonds are a tip over 3%. This is the result of the "fear trade," which drives investors from the hunt for returns to wealth-preservation. Overall, it reflects bad news, not good.
There is, however, a double silver-lining. First, if the Treasury manages its fundraising well it should be able to lock in low rates for the better part of a generation. If George W. Bush wants to do Barack Obama one last favor he should sell as many 30-year bonds and ten-year notes as he can stuff down the throats of terrified foreigners. Which leads to the second benefit: You know all those dollars that we send overseas to buy oil from dirtbags and, well, stuff from the Chinese? They are pouring into grossly overpriced and underyielding Treasury securities. Not only is the "fear trade" driving up the value of the dollar (which means we will send fewer dollars abroad to buy the same amount of oil or stuff), but it means that once again we will have repatriated our trade deficit at a profit.
CWCID: A smart friend of mine, or maybe his wife.
3 Comments:
By 
, at
Thu Dec 04, 09:44:00 AM:
I'd be careful assuming the Chinese are buying these Treasuries. The Chinese have huge internal stimulus needs for cash themselves, and the government owns most of the liquid capital used for stimulus. Most of that money might have once upon a time been parked in agencies and Treasuries, but perhaps not so much now.
Given the tremendous exodus from the stock market I'm betting that Americans have historically high levels of cash right now, and are parking the money in Treasuries.
By 
SR, at
Thu Dec 04, 10:31:00 AM:
By Coach Morgan, at
Thu Dec 04, 12:54:00 PM:
Could be foreigners. I think a big part of the buying in US Banks, having offloaded their agency debt and MBS to the Fed and TARP, replacing the cash received with Treasuries.
