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Flight-to-safety lowering interest rates, helping U.S. finance deficit

Posted Dec 15th 2008 10:29AM by Joseph Lazzaro (RSS feed)
Filed under: Forecasts, Recession, Financial Crisis

Imagine paying the United States government to hold your money for three months.

The condition appears to turn investment theory on its head, but that's what investors are doing in today's uncertain, risk-averse markets.

Foreign investors are accumulating Treasuries at the fastest pace since 1988, up 12% since September, Bloomberg News reported Monday, citing U.S. Federal Reserve data. They are becoming institutional investors' mattress. The tactic is driving Treasury rates to record lows: the 2-year note has fallen to 0.76% from 3.11% on June 13, while the 3-month Treasury turned negative on December 9 for the first time.

Meanwhile, the 10-year and 30-year Treasuries have fallen to 2.55% and 3.04%, respectively -- not much return on your investment, but that's beside the point: investors currently are more concerned about the return of their investment than the return on their investment.

Still, economist David H. Wang said there's an upside and a downside to the lower interest rates for Treasuries.

Continue reading Flight-to-safety lowering interest rates, helping U.S. finance deficit

Fed be nimble, Fed be quick, Fed deploys another monetary fix

Posted Mar 11th 2008 5:30PM by Joseph Lazzaro (RSS feed)
Filed under: Good news, Economic data, Housing, Recession

The compelling question following the Fed's action, in conjunction with the world's other, major central banks, is whether it will work. Will it be enough to get the U.S. economy moving again?

And as is so often the case in economics, the answer depends on three unknown factors, a pair of economists told BloggingStocks Tuesday. (In an initial review, the market appeared to signal its approval of the Fed's action, with investors sending the Dow 300 points higher to 12,156 in late Tuesday afternoon trading. )

New Fed tool: TSLF

First, the Fed's new Term Securities Lending Facility should convince bank dealers that liquidity should not be an issue, economist David H. Wang said Tuesday. "No bank or bond dealer should fear that they won't be able to find financing. That should improve bond market liquidity," Wang said. In addition, the Fed's willingness to swap U.S. Treasuries for mortgage-backed securities (MBS) should restore some trust -- but by no means total trust -- to the MBS market and help market participants price these securities, he said. The Fed's accepting private mortgage debt collateral speaks directly to where the market is stressed the most, Wang said. However, if MBS's are not pricing and trading, that would indicate continued concerns about liquidity, he said.

Continue reading Fed be nimble, Fed be quick, Fed deploys another monetary fix

Treasury yields suggest U.S. economy should rebound before election

Posted Feb 11th 2008 1:30PM by Joseph Lazzaro (RSS feed)
Filed under: Forecasts, Economic data, Federal Reserve, Recession

The U.S. economy could be growing faster before the inauguration of the new U.S. president. Bloomberg News reported Monday.

The forecast is based on the rise in the 5-year U.S. Treasury yield from its lowest level relative to the 2- and 10-year notes since 2001. The last two times that occurred, during the 1990 and 2001 recessions, the economy started to expand within nine months.

Famous last words

Economist David H. Wang agreed that the indicator has accurately predicted previous recoveries. "It's been an accurate indicator, famous last words," Wang told BloggingStocks Monday.

However, Wang cautioned that the nation's public officials, corporate America and individuals can't overlook, or neglect to prepare for, what's in-between.

Continue reading Treasury yields suggest U.S. economy should rebound before election

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Last updated: November 24, 2009: 06:11 AM

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