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Treasury Bond Market Prospects Austin Nicholas

Treasury Bond Market Prospects Austin Nicholas. Flight to Safety. Consistently bad economic news reaffirms the painful state of recession, motivating investors to keep their assets tucked away in the safety of government bonds.

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Treasury Bond Market Prospects Austin Nicholas

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  1. Treasury Bond Market ProspectsAustin Nicholas

  2. Flight to Safety • Consistently bad economic news reaffirms the painful state of recession, motivating investors to keep their assets tucked away in the safety of government bonds. • As investors putting funds away in government bonds, government is spending rapidly to rescue economy.

  3. Warren Buffet on Treasury Bond Bubble • “The U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary" as the Internet bubble of the late 1990s and the recent housing - Warren Buffet

  4. Monday March 2nd: • Investors flocked to Treasury Bonds following AIG and HSBC Reports • American International Group • reported $61.7 billion Q408 Loss • another $30 billion in US. Govt. funding, now totaling $180 billion in federal loans. • HSBC • needs to raise $17.7 billion. • Reported 70 percent drop in 2008 earnings • Will cut 6,100 jobs. • Shutdown U.S. consumer-lending business

  5. Effect on Bond Prices, March 2nd: • Benchmark 10-year Treasury • rose 1 5/32 to 98 27/32. • yield fell to 2.88 percent from 3.02 percent late Friday. • Two-year note • rose 5/32 to 99 30/32, • yield fell to 0.90 percent from 0.98 percent. • 30-year bond • rose 1 20/32 to 97 29/32, • yield rose to 3.62 percent from 3.71 percent. • Three-month T-bill • yield slipped to 0.24 percent from 0.25 percent

  6. Key Interest Rates Today: • Bond Prices Advanced • Weak employment data • Disappointment in Stimulus Plans in China, revived interest in security of US Debt • Stock fell to 13-year low • Federal Reserve May Purchase longer-maturity government securities after Bank of England said it would buy sovereign and corporate debt

  7. Consumer Spending • U.S. consumer spending and personal incomes came in better than expected in January. • Commerce Department said consumer spending rose 0.6%, . • higher than the 0.5% that economists surveyed by MarketWatch had expected. • Incomes rose 0.4%, much better than the 0.1% decline forecast.

  8. Inflation • Inflation May Rise, Depressing Bond Prices • Bailouts May Bring “onslaught of inflation”- Buffet • Federal Reserve Bank of Philadelphia: First Quarter 2009 Survey of Professional Forecasters • Forecasts slight increase in 2010 over 2009

  9. Future • Treasury Will Continue to increase government bond supply as administration continues need to issue debt to pay for financial system rescues • $94.0 billion issued last Thursday (February 26th) • Modest interest, but signs of hitting saturation point. • If Saturated, will depress prices, increasing yields • Signs of continued economic weakness may continue to attract new investors, depressing yields. • The US will auction $34 billion in three-year notes on March 10, $18 billion in 10-year notes the next day and $11 billion in 30-year bonds March 12 • However, foreigners, who own about $3 trillion of the nearly $6 trillion Treasury market, may decrease purchases as they devote more resources to deep economic problems in their domestic economies. • Analysts expect the U.S. government to issue some $2 trillion of debt this year to fund financial rescue efforts, flooding the nearly $6 trillion Treasury market. • Long-term relative effects on Price/Yield will depend on market saturation, economic indicators/inflation and government spending.

  10. TBTProSharesUltraShort 20+ Year Treasury (ETF) Corresponds to twice (200%) the inverse (opposite) of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Index(TLT). Interests rates cannot go lower, inflation concern, dollar weakening. Yield on Treasuries Negative on Most Currencies Bond Bubble Will Burst, TBT will yield good returns Very Strong Long Term Investment

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