Why is there heavy selling in U.S. Treasuries?

Posted Jan 21st 2009 10:45AM by Connie Madon
Filed under: Federal Reserve

Where is the bond market headed?

Fear over the increased debt supply for various stimulus packages triggered heavy selling in U.S. Treasuries. The 30 year long bond fell over 3 points, now yielding 2.99%. The yield curve has steepened in the past week. This happens when longer term bonds and notes fall faster than shorter term maturities such as Treasury notes and bills.

There is concern over the Treasury's need to finance large chunks of U.S. debt. A new round of quarterly refunding has raised fear about the market's ability to absorb the $144 billion dollars worth of Treasury coupons in that two-week period.

It is expected that the first half of the year will be a volatile period for U.S. Treasuries. We have never had such a large debt to finance, so no one really knows how investors will react when all of this supply hits the market.

What do you think would happen if investors fail to step up and buy our debt?

Tags: inthenews, refinancing, US treasuries, UsTreasuries, yield curve