The budget deficit guarantees the existence of public debt over many years. Foreigners are thinking about the financing of the budget, underscoring the recent report that China sold some of their Treasury securities. The crisis in Greece and other countries underlines the risks of buying bonds of countries with high debt. And finally, the expansion of the Fed balance sheet through various lending programs and the purchase of assets threatens both the authority of the Central Bank, and rising inflation. Higher inflation certainly pushes long-term profitability is much higher. Indeed, a month ago, a respected author and hedge fund manager suggested that "everyone" should be put on lowering Treasury securities.
Maybe so. Of course, in the long term, the U.S. must return to fiscal prudence and to reduce their deficits, or they will face the rising cost of credit. However, in the medium term - say, in the next few quarters, a reasonable investment horizon - it is arguable that the market for Treasury securities will be maintained at current levels and may even surprise and a lower yield.
The deficit is high and amounts to about $ 1.5 trillion, approximately 11% of GDP, as in 2009. Forecast deficit for 2010 was fairly stable during the year. In other words, the current prices and a steep yield curve reflects the level of continuing support for the deficit. Given the economic recovery, incomes should also soon stabilize. In any case, the relationship between the absolute size of the deficit and yield inconclusive. Japan ruled the large deficits in 20 years, combined with the lowest yield in the world.
However, Japan is funding itself from domestic savings, while the U.S. relies on foreign investors. But is it foreigners do not feel is anxiety? Last month, the Treasury announces the number of holders of Treasury securities for the month. Although foreign investors as a group, to buy securities, the Chinese, most were in the role of sellers. Can it be like a canary emitted from the coal mine? It is reported that China's stock dropped from $ 800 billion at the peak, up to $ 755 billion by the end of the year. These data have attracted considerable attention, but only after changes made to them. The adjustments show that among foreign investors, in aggregate there were more buyers in 2009 than previously stated. In particular, China's savings have been significantly revised in the bigger side, the latest evidence that its reserves amount to $ 894 billion, rather than earlier claimed $ 755 billion.
In addition, the private sector, the U.S. is reducing risky market positions. According to statistics from the Federal Reserve, households and businesses now pay. In other words, the government does not compete or displace other borrowers with a large pool of savings, while foreigners are said to show no signs of falling demand.
So what about the fear of "sovereign risk"? Global markets are interconnected and are constantly in search of higher returns adjusted for risk. In times of stress, investors are looking for clear them asylum. At the moment is the European periphery. The dollar rose by 10% since November, partly because of structural weaknesses (although long known), whom he is now exposed in the euro zone. Market Treasury securities mutil water in recent months, referring to the clear signs of recovery in the U.S., though weak. If the crisis goes beyond the Greek market of Treasury securities are more likely to be the recipient of investment capital because of the investor's perspective in the broader stressful period in Europe.
Will the expansion of the balance of the Fed and policy "quantitative easing" push inflation and, thus, worsen the debt of the Treasury? Recovery, although moving in the right direction, looks weak by historical standards, and the ongoing process deleveridzha acts as an obstacle to both growth and inflation. The stagnation in the economy rather serious, but inflationary pressures are likely to remain low.
Remember, the Bank of Japan lowered interest rates to zero, has launched the quantitative easing and combined programs to start lending - and all this while, the government managed a significant budget deficit - and Japan still lives with deflation. Indeed, the yield of 10-year JGB fell to the lowest low 49 basis points (0.49%) in spring 2003. Perhaps, more money was lost JGB during the game for a fall in 1990 than during any other trade.
This does not mean that the U.S. would have to postpone its long-term fiscal problems in the box. Failure to do so, eventually, lead to increased profitability. However, investors need to determine their time horizons. Over the next few quarters evidence of stabilization of deficits, the current demand of foreign investors in the securities market, stress in Europe that drive capital flows into the United States, and the lack of inflationary signs show that the yield may be surprised by its decrease. In this environment, aggressive short positions, there is a wrong balance of risks to profits.
Maybe so. Of course, in the long term, the U.S. must return to fiscal prudence and to reduce their deficits, or they will face the rising cost of credit. However, in the medium term - say, in the next few quarters, a reasonable investment horizon - it is arguable that the market for Treasury securities will be maintained at current levels and may even surprise and a lower yield.
The deficit is high and amounts to about $ 1.5 trillion, approximately 11% of GDP, as in 2009. Forecast deficit for 2010 was fairly stable during the year. In other words, the current prices and a steep yield curve reflects the level of continuing support for the deficit. Given the economic recovery, incomes should also soon stabilize. In any case, the relationship between the absolute size of the deficit and yield inconclusive. Japan ruled the large deficits in 20 years, combined with the lowest yield in the world.
However, Japan is funding itself from domestic savings, while the U.S. relies on foreign investors. But is it foreigners do not feel is anxiety? Last month, the Treasury announces the number of holders of Treasury securities for the month. Although foreign investors as a group, to buy securities, the Chinese, most were in the role of sellers. Can it be like a canary emitted from the coal mine? It is reported that China's stock dropped from $ 800 billion at the peak, up to $ 755 billion by the end of the year. These data have attracted considerable attention, but only after changes made to them. The adjustments show that among foreign investors, in aggregate there were more buyers in 2009 than previously stated. In particular, China's savings have been significantly revised in the bigger side, the latest evidence that its reserves amount to $ 894 billion, rather than earlier claimed $ 755 billion.
In addition, the private sector, the U.S. is reducing risky market positions. According to statistics from the Federal Reserve, households and businesses now pay. In other words, the government does not compete or displace other borrowers with a large pool of savings, while foreigners are said to show no signs of falling demand.
So what about the fear of "sovereign risk"? Global markets are interconnected and are constantly in search of higher returns adjusted for risk. In times of stress, investors are looking for clear them asylum. At the moment is the European periphery. The dollar rose by 10% since November, partly because of structural weaknesses (although long known), whom he is now exposed in the euro zone. Market Treasury securities mutil water in recent months, referring to the clear signs of recovery in the U.S., though weak. If the crisis goes beyond the Greek market of Treasury securities are more likely to be the recipient of investment capital because of the investor's perspective in the broader stressful period in Europe.
Will the expansion of the balance of the Fed and policy "quantitative easing" push inflation and, thus, worsen the debt of the Treasury? Recovery, although moving in the right direction, looks weak by historical standards, and the ongoing process deleveridzha acts as an obstacle to both growth and inflation. The stagnation in the economy rather serious, but inflationary pressures are likely to remain low.
Remember, the Bank of Japan lowered interest rates to zero, has launched the quantitative easing and combined programs to start lending - and all this while, the government managed a significant budget deficit - and Japan still lives with deflation. Indeed, the yield of 10-year JGB fell to the lowest low 49 basis points (0.49%) in spring 2003. Perhaps, more money was lost JGB during the game for a fall in 1990 than during any other trade.
This does not mean that the U.S. would have to postpone its long-term fiscal problems in the box. Failure to do so, eventually, lead to increased profitability. However, investors need to determine their time horizons. Over the next few quarters evidence of stabilization of deficits, the current demand of foreign investors in the securities market, stress in Europe that drive capital flows into the United States, and the lack of inflationary signs show that the yield may be surprised by its decrease. In this environment, aggressive short positions, there is a wrong balance of risks to profits.
The Financial Times
No comments:
Post a Comment