Investors yield to inflation concerns

Jeremy Hobson May 28, 2009
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Investors yield to inflation concerns

Jeremy Hobson May 28, 2009
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Steve Chiotakis: It is auction day for the Treasury Department, looking to sell $26 billion in government bonds today. It’s the third Treasury auction this week. The “bond du jour” is the 7 year note.
And the yield on those bonds just keeps rising to numbers not seen since late last year. And that comes amid fresh concerns about inflation. Here’s Marketplace’s Jeremy Hobson.


Jeremy Hobson: Jim Bianco follows the bond market closely. He’s president of Bianco Research in Chicago. And right now, he says, investors are worried about the Federal Deficit, which is expected to hit $1.75 trillion this year.

Jim Bianco: The government can finance about half of that through the collection of taxes, meaning that it has to borrow somewhere around $1 trillion or thereabout. That is a big number, and that is a big concern.

The yield on the 10-year note now sits at a six-month high. That’s because investors fear that inflation will dilute the value of the dollars they’re lending the government, so the government has to pay more to borrow money.

Bianco says yes, the yield is still below where it was last summer, but:

Bianco: It’s the speed at which yields have been rising, especially over the last week or two. It was only 10 or 12 days ago that yields were barely above 3 percent. Now. they’re at 3.75 [percent] in just a couple of days.

And keep in mind, the Fed has increased its purchases of U.S. treasuries in recent months in an attempt to keep yields low.

In New York, I’m Jeremy Hobson for Marketplace.

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