OK,. 2 Big reasons Tsy Market tanked:
1. $$ poured in Treasuries after 9/11, week after week. Market historians refer to that kind of pattern as the classic "flight to safety" you see during panics & crashes, wars, etc.
Now the 1st phase of the War on Terrorism is coming to a successful conclusion, that $$ is flowing back out of treasuries in huge quantities. Some of it will flow into other investments. But that's another subject for another post<g>
2. I've read about this Tsy bond collapse on several threads today. What everyone seems to have forgotten is the perception by the markets that the federal budget has been busted, the surplus has gone bye bye and a new cycle of gov borrowing is soon to begin. This is an enormously important development. And that's what the market said today.
You have huge bailouts for a number of industries with more lining up. Huge expenditures for domestic security already and a great deal more in the pipeline. Huge expenditures to pay for a war on the other side of the world. Huge expenditures, we can only guess at, for the prop job, crank job, pump job manipulations in all the markets.
Add all that all up and the Feds are gonna be selling tons and tons of Tsy bonds to pay for all this in the next few years. Such a tidal wave of new government debt issuance means higher interest rates on government debt. That reality was only hidden temporarily by the "flight to quality" of Tsy buying that's now reversed.
So the bottom line is treasuries going into the tank has nothing to do with a stronger economy. The economy continues to get weaker. Indus production reported today showed the biggest drop in 11 years!
It has nothing to do with inflation. The global economys in one of the most rapid contractions ever recorded accompanied by falling prices. That's the trademark of a deflationary depression. IMO it's only in it's early stages.
And remember, sustained higher LT interest rates on Treasuries, puts more dampening pressure on economic activity and prices of goods & services. Ring up another goal on the scoreboard for the Deflation thesis.
Well that's my best shot at answering your question.
Isopatch |
