Josef Stoulil (Capital Partners)
Bonds  |  December 20, 2010 11:24:43

Confidence in U.S. government bonds declined

Sales of government bonds is entirely based on trust in particular (only) more conservative investors, which must point to this instrument as cornerstone of the capital market of the country. For decades, U.S. Treasury securities enjoyed this sentiment, and no one doubted it would ever be otherwise. Unfortunately, the situation is gradually changing for the worse ...

The central bank Fed flooded the financial system with new dollars, President Obama and Congress are successfully pushed for a new tax law that does not at all equivalent spending cuts. Of course the U.S. government budget deficit will lead to the widening gap between expenditure and income and will thus create enormous internal pressure of confidence in U.S. political leaders as well as the central bank.

Similarly, the rest of the world is losing the belief that the U.S. government will be able to treat its debt service, which also naakumulovala.


Gradually, you can identify the following characters decline of trust in U.S. government bonds:

-The financial community is extremely concerned that the tax package Obama is pushing toward a dramatic increase in U.S. government budget deficit over the next two years. In addition, Moody's Ratings warned that if the approval of this tax measure will increase the likelihood that the agency was forced to downgrade U.S. government debt.

-         There are no obvious signs that bond investors are looking for some way out of the situation, which was confirmed some weeks before the biggest sell-off U.S. treasuries since the collapse of Lehman Brothers in September 2008.

-In Ynos 10Y Treasury Bonds recorded a six-month maximum, and most analysts believe that earnings will probably be pushed further above in the coming weeks. Bond yields have been growing gradually from 7 October this year

-         Even before the proposal was announced tax measures were clear signs of troubled U.S. government debt growth. In November this year increased the budget deficit to 150.4 billion U.S. dollars, the highest number ever recorded in November.

-         Another negative point is the negative reaction of the rest of the world into a new (second) round of quantitative easing (QE2), the Fed announced in November this year the Central Bank intends to purchase assets in the market - bonds worth 600 billion U.S. dollars and thus bring more liquidity into the system.

-         The population of the United States still has less confidence in relation to the Fed and also the financial system. According to Bloomberg National Poll found that Americans want the central bank becomes subject to greater control or cancel it completely.

-         Investors around the world are starting to worry about and be aware that the U.S. debt problem is unsolvable in its scope gradually. Revenues to grow as U.S. fiscal situation is unsustainable.

-         It also is finding there is growing among investors that the Fed simply does not care about the dangers of inflation and thus leads to a nervous bond holders.

- InDuring the next 12 months, the U.S. government will have to implement scrolling around a few trillion of debt and new borrowing, together with the current way it is Federal Reserve policy. In fact, the U.S. government will ever have to find a way of financing the debt, which now for the year 2011 is equivalent to 27.8% of GDP.


For years, U.S. politicians have called his "favorite" that deficits matter, but the truth is that it really matters, and must be addressed .... U.S. national debt is now the highest in its history, and indeed many Americans are afraid of what the U.S. financial horror as a nation will have to face ....




J. Stoulil


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