Bond Market Open September 14 2009
September 14th, 2009 7:41 am | by John Jansen |Prices of Treasury coupon securities have posted mixed results in overnight trading. Securities which mature in 5 years or less have registered minuscule price gains while benchmark securities which mature in seven years or more are dramatically unchanged.
Equity markets have declined in all corners of the globe and pre market trading of US stocks points to a lower opening. Bloomberg relates stories which recount some angst regarding the banking system and some fear that the stock market may be out in front of its skis regarding the potency and power of the economic recovery.
I think that far and away the crucial story is the imposition of a tariff by the Obama Administration on imports to the US of tires manufactured in response and the subsequent reaction by the Chinese to consider taxing our exports to that country of chicken and automotive product.
The action by the US Administration on a common sense level is ludicrous. We are a debtor nation with a gargantuan need for funding. What do we do? We take an action which antagonizes a buyer who in general blindly buys our debt.
The world is on a system wherein the rest of the world manufactures widgets and relies on the US consumer to purchase said widgets. The overseas countries then pile the dollars that they have amassed into US bonds and fund our deficit and profligate spending. That is a crude and simplistic explanation of what transpires.
One can argue about the efficacy of such a system and its impact on US workers and manufacturing. That is not what I am discussing. The simple fact is that if someone provides the foreign buyers of our securities with a serious reason to question the sensibility of such a patchwork arrangement and reduces the role of those foreign entities as marginal buyers of US securities, then we will confront a serious problem.
Actually it is not a serious problem but a simple problem as US interest rates will rise and in short time asset prices will move lower. It does not take a rocket scientist or even an economist to discern that. So why the Administration would take such an action for domestic political gain is beyond me. The potential longer term deleterious impact of the move for the great mass of American people far outweighs the gain which accrues to the Administration’s union supporters.
Maybe there is a former blogger within the inner councils of the Administration with a deep and abiding knowledge of the gravity of the issue who can provide his colleagues with some clarity on this subject!!!
In my mind this is the main story of the day and deserves serious vigilance over the next few weeks as we observe the reaction of foreign governments and investors.
There is no economic data today.
The yield on the 2 year note has slipped two basis points to 0.89 percent. The yield on the 3 year note has also declined by 2 basis points to 1.42 percent. The yield on the 5 year note edged lower by a basis point to 2.29 percent. The yields on the 7 year note and the 10 year note and the Long Bond are unchanged at 2.94 percent, 3.35 percent and 4.18 percent, chronologically.
The 2year/5year/30 year spread is a little narrower at 49 basis points.
The 2 year /10 year spread is 246 basis points and the 10 year/30 year spread is 83 basis points.
5 Responses to “Bond Market Open September 14 2009”
By jg on Sep 14, 2009 | Reply
Why take on China?
Threat — “Keep buying our Treasuries, or we will shut your access to our markets.”
Then, with Chinese acceptance via back channels, ObaMessiah can gracefully pull back the threat as part of a grand unified new trade agreement with China.
Just a guess by me. I can think of no other logical reason.
By Bman on Sep 14, 2009 | Reply
That, and he throws the Unions a bone – he does not want to loose any support at this time.
By steve gelmis on Sep 14, 2009 | Reply
Everywhere I’ve seen the tariff story covered it is framed as though the US administration is the one initiating the spat. I can’t help wondering whether part of what is driving this is a response to China’s announcement of their intent to default on losing commodity derivative contracts.
http://english.caijing.com.cn/2009-09-14/110249280.html
By Brett Tibbitts on Sep 14, 2009 | Reply
You are so right. The Obama administration’s decision to impose a tariff on tires is ludicrous. The only explanation that makes sense is that it’s further evidence of how beholden the B.O. administration is to the unions.
But tires are just the tip of the iceberg. What happens when there is a true military emergency in North Korea or Iran and the US needs to make a move? What happens if China says at that time, “You’re not making that move or we will withdraw from buying your ridiculous debt?”
My guess is that no one in the B.O. administration is figuring on that happening….only time will tell. But when you are that big a debtor to one nation, you better play it far smarter than this country has been doing.