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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: Henry Volquardsen who wrote (2033)	8/9/1999 11:26:00 AM
From: Sam	Read Replies (1) \| Respond to of 3536

Henry, Kellner has a funny definition of "risk-free" (see the last paragraph of the article below), but I thought that as a bond buyer you might enjoy this article. Treasury buyback offers risk-free deal By Dr. Irwin Kellner, CBS MarketWatch Last Update: 11:56 AM ET Aug 6, 1999 Economic forecast Previous Kellner gems NEW YORK (CBS.MW) -- Bond buyers, wake up and smell the coffee! You have just been presented with a rare opportunity to make money risk-free -- and the offer comes from the U.S. government, no less. That's right: Washington has just announced that it wants your investment in its paper to appreciate -- the sooner, the better. To that end, the Treasury said this week that it plans to buy back some of the $3.6 trillion in bonds it has sold to the public over the years. In addition, the government has reduced the number of times each year that it issues 30-year bonds. From now on, you'll only be able to buy new long bonds in February and August -- not in November. All this is in addition to a program that has been under way for the past two years that has resulted in a reduction in outstanding Treasury debt. The government has been issuing fewer new securities as the old ones mature. The reason for all this, of course, is Washington's budget surpluses. Last year, the government ran a surplus in its budget for the first time since 1969. This year's dollop of black ink will be even bigger -- and will give Washington its first back-to-back years of budget surpluses since 1956 and 1957. Debt payments Meanwhile, the $5.6 trillion debt that the government owes from all the deficits of the past is costing it (and that means U.S. taxpayers) some $230 billion in interest payments this year alone. The buyback plan aims to accelerate the reduction in interest expense that would naturally accrue from a string of budget surpluses. It doesn't take a rocket scientist to figure out that reducing the supply of such a security as the 30-year bond in the face of constant demand will boost its price, thereby cutting its yield. Indeed, earlier this week this bellwether bond's yield fell more than an eighth of a point, to just over 6 percent, before inching higher on Friday in the wake of the surprisingly strong employment report. Rate play But this is just the beginning. Earlier this year, its yield was 5 percent, and last October interest rates on this benchmark security touched 4.75 percent -- the lowest level in 35 years. With inflation at its current rate, the Treasury's buyback program should move bond yields back toward -- if not below -- these levels. That means a tidy increase in prices of these long-term securities. And if by chance inflation should heat up and/or something else comes along to spook the bond crowd, you can always get your principal back from Uncle Sam by holding to maturity. That's what I mean by "risk free." [My comment on that last paragraph: As if getting your principal back after it has been trashed by inflation means that the investment was "risk free". Why does this guy--most of these guys--write this kind of crap? As they stupid themselves, or do they just think that their readers are idiots? s.]