Friday, December 11, 2009

Yield Curve Steepest Since 1980; Hard Times Ahead in 2010

The bond market is starting to show signs of concern over budget deficits and the corresponding supply of treasuries. Please consider Treasury Yield Curve Steepest Since at Least 1980 After Auction. http://www.bloomberg.com/apps/news?pid= ... Afkk&pos=2

Treasuries fell, with the gap in yields between 2- and 30-year securities reaching the widest margin since at least 1980, after a $13 billion offering of 30- year bonds drew lower-than-forecast demand.

The so-called yield curve touched 372 basis points, the most in at least 29 years, as the bonds drew a yield of 4.52 percent. The so-called yield curve has widened from 191 basis points at the end of 2008, with the Fed anchoring its target rate at a record-low range of zero to 0.25 percent and the Treasury extending the average maturity of U.S. debt.

Treasury officials on Nov. 4 announced a long-term target of six to seven years for the average maturity of Treasury debt and said the department wants to cut back on its issuance of bills and two- and three-year notes. The shift to longer- maturity debt has raised concern that investors will demand higher yields to offset the risk of inflation as government spending drives the deficit to a record $1.4 trillion.

“The market is continuing to worry about the massive amount of Treasury issuance that’s going to hit the market well into next year,â€