U.S. Treasuries Fall for Third Day on Spending, Supply Concern
February 27th, 2009Via: Bloomberg:
Treasuries fell for a third day as the government sold $22 billion of seven-year notes in the last of three auctions this week as it issues an unprecedented amount of debt to spur the U.S. economy.
Declines were led by 10- and 30-year securities. President Barack Obama’s administration forecast a budget deficit of $1.75 trillion in the fiscal year ending Sept. 30. That’s 23 percent higher than a forecast by economists at primary dealer Goldman Sachs Group Inc., and equivalent to about 12 percent of the nation’s gross domestic product.
“This mountain of supply isn’t going to go away any time soon,” said Kevin Flanagan, a Purchase, New York-based fixed- income strategist for Morgan Stanley’s individual-investor clients. “If Obama or Congress cannot offset some of the spending with tax increases, or in cutting back on other spending, then the difference has to be made up with Treasury issuance.”
…
“The biggest difficulties will be in the next few seven- year auctions,” said William O’Donnell, a U.S. government bond strategist at UBS Securities LLC in Stamford, Connecticut, one of the 16 primary dealers required to bid at Treasury auctions. “We’re going to get a very hefty slug of supply. As the saying goes, if you miss an auction this week, you’ll get another auction next week. It never ends.”
Possibility of Default
The U.S. is borrowing so much that it may have trouble paying the money back, said Jaemin Cheong, a bond trader in Seoul at Industrial Bank of Korea, the nation’s largest lender to small- and mid-sized companies.
“Yields are headed higher,” Cheong said in an interview. “More issuance will be needed to support the economy. The possibility of default is more and more as time passes.”
