The U.S. Treasury announced it would auction off $104 billion worth of bonds. According to CNBC, “The sales will exceed the previous record of $101 billion set in auctions that took place in the last week of April. That record was matched by another $101 billion... in May.”
“The Treasury’s [sic] include $40 billion in 2-year notes on Tuesday, $37 billion 5-year notes on Wednesday and $27 billion in 7-year notes on June 25...
“The Treasury routinely sells billion of dollars worth of debt paper to fund the federal budget deficit.”
However, analysts’ worries about supply have weighed on the U.S. government bond market, which will see a mammoth $2 trillion worth of new debt issued this year.
But according to an article in the Los Angeles Times, that worry hasn’t crossed into the stock market as the Treasury market is losing the battle with stocks, commodities and other markets that typically attract money when people believe that things can only get better.
According to the report, “George Goncalves, interest rate strategist at bond dealer Cantor Fitzgerald in New York, argues that investors are too optimistic about the economy and that current Treasury yields will prove to be good returns for investors.”
Meanwhile, China, the largest holder of U.S. debt, once agained signaled concern over worth of U.S. dollar. The AFP reports, “A decision by China to reduce its US Treasury holdings suggests concern about the US attitude towards its economic woes... According to US Treasury data issued Monday, Beijing owned 763.5 billion dollars in US securities in April, down from 767.9 billion dollars in March.”
"China is implying to the US, more or less, that it should adopt a more pragmatic and responsible attitude to maintain the stability of the dollar," He Maochun, a political scientist at Tsinghua University was quoted in an interview with the Global Times.
But according to an article published in Seeking Alpha, China has no choice but to continue to buy U.S. treasuries. If China were to sell of its supply of U.S. debt, “it would result in a massive loss of reserves for the Chinese. Their remaining Treasuries would plummet and they would put themselves in a race with other Treasury-holders to dump them the quickest.”
However, before the U.S. announced the sale of more debt, treasuries enjoyed one of their longest rallies since January. Some analysts suggest the 10-year note's yield is unlikely to revisit the 4% level near term.
Editor Justice Litle of Taipan’s Safe Haven Investor has been following the bond market for several months. In fact, in his January issue, Litle recommended readers take a position in what he calls “crisis bonds.”
Crisis bonds are convertible securies that come in two forms – bonds and preferred. Justice adds, “But in both cases you get a fixed rate of interest.”
What’s more, in a soaring stock market, convertibles act like stocks, but when stocks slump, they act like a bond making them an almost perfect investment.
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