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“Sun Worldwide”, the Asian-based investment boutique broker, believes that the market for US Treasury bonds is beginning to show signs of oversupply after investors demanded higher yields on a $39bn tranche of 5 year bonds.
An anonymous “Sun Worldwide” source suggested that as the US Treasury was set to issue $2 trillion in new bonds this year to finance the unprecedented bailouts and fiscal stimulus measures, this was likely to set the tone for future auctions of similarly-dated debt securities.
The US government is issuing record levels of new debt in an effort to fund the deep recession that will be two years old in December 2009 but “Sun Worldwide” is thought to believe that investors will continue to demand higher yields in return for effectively lending money to the US.
A collapse of confidence in the bond market could prove disastrous for the US which is the world’s largest debtor nation and also mean an inordinate amount of pressure being placed on the dollar despite its reserve currency status.
The “Sun Worldwide” source said that the firm was surprised that it had taken this long for so-called bond vigilantes to begin demanding higher yields but, in light of the large amount of deleveraging that had taken place since the collapse of Lehman Brothers, the dollar had, somehow, held on to its safe haven status. The return of investors’ appetite for risk, however, would see demand for treasuries continue to wane which may leave the Federal Reserve to mop up the considerable surplus supply in the months ahead through expansion of its quantitative easing policies.
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