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Investors are still gobbling up Treasuries

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March 12, 2009 – Comments (4)

There was some fascinating action in the bond market today.  Defying many analysts who believe that the market will eventually choke on the massive amount of debt that the U.S. government is issuing, investors gobbled up the "long bonds" aka 30-year bonds that the government just issued.  The U.S. Treasury sold $11 billion in 30-year bonds today at a yield of 3.640%. 

It's beyond me who is willing to lend their money to anyone, including the U.S. government, for 30 loooong years at only slightly over three and a half percent when they could rake in twice that on much shorter corporate debt of some pretty decent companies right now.  For whatever reason investors are lovin' themselves some Treasuries.  Foreigners are still more than happy to finance U.S. spending.  "Indirect bidders, a group which includes foreign central banks, bought the largest chunk of any Treasury issue since since February 2006 (46.2%).

All of this tells me that despite the recent rally in the stock market investors are still very afraid.  Otherwise why would they be willing to lock up their money for so long at such a low yield?  I still believe that interest rates are eventually headed much higher, but I suspect that it will take much longer than many people believe at this point.  The Fed is going to keep rates at near 0% until the end of 2010 at the earliest.  The only way that interest rates will rise is if foreigners lose their appetite for our debt...and that clearly has not happened yet.  I don't see any reason to be afraid of locking in reasonable yields on corporate bonds for the next several years today.  I think that the fears of exploding interest rates are overblown at this point.  Time will tell and it won't matter much if I hold to maturity anyhow.

Treasurys gain after well-received bond auction

Deej

4 Comments – Post Your Own

#1) On March 12, 2009 at 5:02 PM, djemonk (< 20) wrote:

Locking in 3.64% for 30 years doesn't sound like a great deal to me.  These aren't indexed to inflation, are they?  That would make sense.

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#2) On March 12, 2009 at 6:02 PM, nuf2bdangrus (< 20) wrote:

I continue to be short treasuries via RYJUX, as it is the least leveraged short I can find.

 

 

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#3) On March 12, 2009 at 6:38 PM, Harold71 (22.25) wrote:

"I think that the fears of exploding interest rates are overblown at this point."

I will maintain my bearish stance on this one. Insolvent countries should not get 30 year loans for 3.6%.  That's just common sense.

Disc: LEAP put options on the long bond.  If/when it happens, I may not have time to put in a trade. 

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#4) On March 12, 2009 at 7:21 PM, SharpSEO (70.47) wrote:

The Fed could already be artficially supporting t-bill prices, right? They've been threatening to do so for a while. Pretty scary when a (private) branch of our gov feels the need to posture and puff its feathers.

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