Vigilantes Sidelined as Treasury Swaps Show Growth Tops Deficit

[dkf]

The worst performance by Treasuries since the second quarter of 2009 reflects prospects for faster U.S. economic growth rather than concern that rising budget deficits will drive investors away from government debt.

While the average yield on Treasuries rose to 1.89 percent from 1.42 percent at the end of September, according to the Bank of America Merrill Lynch Treasury Master index, the price of credit-default swaps tied to U.S. debt declined to 41.5 basis points from 48.4 basis points at the end of September, according to Bloomberg data. The dollar rose 1.5 percent against an index of currencies of six major U.S. trading partners.

The drop in swap prices and the greenback’s strength shows bond vigilantes aren’t ready to punish the U.S. for its spending. Pacific Investment Management Co. and JPMorgan Chase & Co. raised their growth forecasts after President Barack Obama agreed to extend George W. Bush-era tax cuts as reports show gains in retail sales, manufacturing and consumer confidence.

“More than anything else, it’s a growth story,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York. “From the fiscal stimulus to the monetary stimulus to the tax extensions, it’s the belief that the U.S. government is all in.”

http://www.bloomberg.com/news/2011-01-03/vigilantes-sidelined-as-growth-tops-deficit-among-treasury-swap-investors.html

[MrModerate]

1. Deficit mania is a fact-free phenomenon and primarily a tool of demagogues. n/t

[dkf]

2. Tell that to the Greeks.

[pa28]

3. The OP works against the idea we are headed toward a Greek style debt meltdown.

However, the OP was written by you. Seems contradictory.

:shrug:

[dkf]

6. It's staved off for now.

The concern was that the leap in interest rates was due to the increased perception of default but when examined closer, because of the narrowing of yields in the credit default swap market, it seems like the rates are moving up because of the growth prospects.

These aren't the bond vigilantes yet. But that doesn't mean it won't happen in the future. The US has just bet all in and the chips are all up for grabs. That could be good or bad depending on where it takes us.

[girl gone mad]

4. Greece is not comparable to the US.

[dkf]

7. It's not comparable to the US, but any country can be vulnerable to the bond vigilantes.

I'm sure you know quite a bit about what Clinton went through.

[MrModerate]

5. OK . . . *American* deficit mania is a fact-free . . . etc., etc. n/t