Here's Allan Robinson's At The Bell which you'll find in Wednesday's newspaper: The U.S. Department of the Treasury will auction $25-billion (U.S.) in three-year notes today as the government adds cash to its coffers amid a soaring budget deficit. The good news for the government, as it continues to borrow at the lowest interest rates in decades, is that the demand for U.S. Treasuries and the greenback remain strong. WHAT ARE THE EXPECTATIONS? "Our own statistical followings now show that the Treasury market has the highest ever percentage of bulls in key surveys," said William O'Donnell, a fixed-income strategist for Deutsche Bank Securities LLC, in a report to clients. The yields on U.S. Treasuries may be close to a bottom, he said. "The toxic combination of excessive and unsustainable extremes in bullish sentiment and the coming onslaught of Treasury supply lead us to this conclusion." The new monthly auctions of three-year Treasuries began in November, although no new cash was raised at that time because of bond redemptions that took place, according to Deutsche Bank. The yield on three-year U.S. Treasuries yesterday fell 11 basis points to 1.11 per cent. (A basis point is 1/100th of a percentage point.) Scheduled for release after today's auction is the monthly U.S. budget deficit, which is forecast at $171-billion in November, compared with $237-billion in October, according to the Congressional Budget Office. The total deficit of $408-billion during the first two months of fiscal 2009 would be $253-billion higher than last year. This year's results include $191-billion disbursed in the Troubled Asset Relief Program. "I would surmise that U.S. Treasuries are getting a bit pricey at these levels, but they are not in a bubble," said Sal Guatieri, a senior economist with BMO Nesbitt Burns Inc. In a prolonged period of economic stagnation such as Japan experienced during the past 10 years, yields can remain low, he said. As for the United States, bond yields could remain low for an extended period of time, Mr. Guatieri said. High bond prices would depend on an inflation rate of 1 per cent or less, which is possible given the expected high levels of unemployment; the good credit standing retained by the U.S. government and a current debt-to-gross domestic product ratio that isn't overly high; and an economic recovery that could be subdued and lengthy, resulting in low investment returns, he said.
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