Ken’s Take: Team Obama thought it was a good idea to screw Chrysler bondholders (secured creditors) un favor of the UAW (unsecured “junior” creditors), and has assumed that investors (mostly the Chinese) would continue soaking up US Treasury bonds to fund the current spending spree.
Now, Treasury bond yields are soaring. A function of the massive amount of debt being put on the books, and the realization that the rules re: the security of bond offerings is subject to government whims. This is going yo become a big story …
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Excerpted from WSJ: “The Bond Vigilantes”, May 28, 2009
Treasury yields leapt again yesterday at the long end, with the 10-year note climbing above 3.7%, its highest close since November. Treasury yields had stayed low, and the dollar had remained strong,
As risk aversion subsides, and investors return to corporate bonds and other assets, investors are now calculating the risks of renewed dollar inflation.
They have cause to be worried, given Washington’s astonishing bet on fiscal and monetary reflation. The Obama Administration’s epic spending spree means the Treasury will have to float trillions of dollars in new debt in the next two or three years alone.
No wonder the Chinese and other dollar asset holders are nervous. They wonder — as do we — whether the unspoken Beltway strategy is to pay off this debt by inflating away its value.
The surge in the 10-year note is especially notable because its rate helps to determine mortgage lending rates, and the Fed is desperate to keep mortgage rates low to reflate the housing market,.
Full article
http://online.wsj.com/article/SB124347148949660783.html
The Homa Files 