Investors dump bonds after President Obama’s announcement

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JEREMY HOBSON: Well the political fallout continues over the President’s compromise with Republican leaders to temporarily extend tax cuts and unemployment benefits. But there’s market fallout as well. Investors are dumping government bonds.

Marketplace’s David Gura has more now from Washington.

DAVID GURA: Investors were worried about the deficit. The tax plan the President announced yesterday would add hundred of billions of dollars to it. That means, we’ll probably see the Treasury Department sell more bonds in the future.

Guy Lebas is a strategist with Janney Montgomery Scott. He says investors have to respond.

GUY LEBAS: Because the tax cuts are going to create a little bit more deficit spending in 2011 and 2012, that means the government’ll need to issue more bonds. And then as supply goes up, the value of bonds outstanding goes down a little bit.

President Obama says the tax plan may not help cut the deficit today — but at a news conference yesterday, he said, look, tax cuts, tax credits — they may help in the long-term.

BARACK OBAMA: We can do a whole bunch of other stuff, but if the economy is not growing, if the private sector is not hiring faster than it’s currently hiring, then we are going to continue to have problems no matter how many programs we put into place.

The administration hopes these initiatives — this spending — will kick-start growth.

In Washington, I’m David Gura, for Marketplace.