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WAS04:ECONOMY-DEBT:WASHINGTON,13DEC00 - The U.S. Treasury, is set to start buying back up to $30 billion of governmental debt this year, Treaury Secretary Lawrence announced January 13. The government has not conducted buybacks since the 1970s but the emergence of budget surpluses in recent years has made it possible for Treasury to add buybacks to its tools for managing the nation's debt. bm/HO Photo (STR/REUTERS)
WAS04:ECONOMY-DEBT:WASHINGTON,13DEC00 - The U.S. Treasury, is set to start buying back up to $30 billion of governmental debt this year, Treaury Secretary Lawrence announced January 13. The government has not conducted buybacks since the 1970s but the emergence of budget surpluses in recent years has made it possible for Treasury to add buybacks to its tools for managing the nation's debt. bm/HO Photo (STR/REUTERS)

Why T-bills remain the ultimate haven Add to ...

The yield on 10-year U.S. Treasury notes rose Monday from the historic lows hit last week. The benchmark note was paying 1.524 per cent in afternoon trading.

The slight rise in the price of 10-year T-bills (yield and price move in opposite directions) was most likely the result of some profit taking by traders. But it also raises the inevitable question of whether debt is finally going to start getting more expensive for the U.S. government.

Three days ago, former Federal Reserve Chairman Alan Greenspan told CNBC he was worried that the bond vigilantes could soon be gunning for the free-spending U.S. government and would try to drive up yields.

In an interesting blog post, Cullen Roche, founder of Pragmatic Capitalism, gives his take on events. He explains how the U.S. system works against vigilantes because the Fed, the Treasury Department and a select group of U.S. banks (the Primary Dealers) work to insure there is always demand for U.S. Treasuries.

“And so long as the Fed is co-ordinating their actions with the primary dealers (which they do daily) then we shouldn’t expect Treasury bond auctions to fail (these are well co-ordinated events designed NOT TO FAIL),” he writes.

(The U.S. also has the benefit of political union, which Europe so obviously lacks today).

The biggest risk to holders of U.S. government bonds will never be the bond vigilantes. It’s inflation, and at this point there is no risk of that on the horizon, Mr. Roche says.

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