Experts: Investors Avoid U.S. Bonds, Sensing Pricey Obamacare Disaster

Thursday, 25 Mar 2010 01:04 PM
By: Frank McGuire

Bond investors have avoided two major Treasury Department auctions this week, prompting economists to say there is a looming sense of financial disaster in the wake of President Barack Obama’s landmark — and expensive — healthcare overhaul.

If demand for U.S. debt continues to weaken, experts say the government would be forced to pay higher interest rates to lure investors. Prospects that the $940 billion healthcare plan could add to the massive U.S. deficit would make the nation's debt less attractive to investors because of an increase in supply and less fiscal stability.

Most auctions so far in 2010 have attracted strong demand. Experts say a few lukewarm auctions don’t mean that demand will continue to evaporate. An auction Tuesday of $44 billion in two-year notes also saw demand slip from earlier in the year.

Investors showed little interest in the Treasury Department's $42 billion auction of five-year notes Wednesday, which pushed Treasury higher and prices lower.

Investors were cautious ahead of the five-year auction because of Tuesday's results. Prices extended their slide after the government announced the latest results.

The yield on the five-year note rose to 2.59 percent in late trading from 2.42 percent Tuesday. Its price fell 25/32 to 98 31/32, according to market data.

David Zervos, head of fixed-income strategy at Jeffries, told CNBC that the dismal results may be an indication of how uneasy investors are feeling about the fiscal soundness of the United States, amid big government spending for healthcare and other expensive programs.

“It’s the healthcare-realization trade,â€