Comments from the Treasury Secretary and less than stellar Fed buying pushed Treasuries lower today. The two-year finished down 3/64, and the ten-year was lower by 33/64. The benchmark curve was 4 basis points steeper on the day, and currently sits at +196 basis points. A basis point represents .01%.
Today the Fed purchased $7 billion in US Treasuries with maturities ranging from 2/29/16 to 2/15/19. Although the range of buying went into to the 10-year area, the Fed again concentrated on the shorter end of the announced range while buying $3.99 billion of notes maturing in 2016. $130 million of the on-the-run 10 year was purchased in today’s activity, but the market was expecting more in terms of that specific bond, causing the longer end of the benchmark curve to suffer.
Geithner Goes Green
Bonds sold off from their highs of the morning as the Fed announced their purchases, but that probably had more to do with stocks moving into the green as Treasury Secretary Geithner began his testimony on Capitol Hill. Geithner’s comments were seen as a positive as he backed off his previous comments hinting at converting the Treasury’s existing preferred stake into common stock. I use the word “comments” but yesterday the market saw them more as “threats”.
Geithner indicated in an interview yesterday that the health of individual banks won’t be the sole criterion for whether the Treasury will permit the repayment of TARP funds. Today’s testimony improved on yesterday’s interview, as he noted that a lower demand for credit is the major reason for the lack of lending currently and not simply liquidity being selfishly hoarded by financial institutions. I give him some credit for this because many lawmakers just continue to ignore this fact. However, Geithner is still doing his share of ignoring.
Government involvement is currently the biggest deterrent of private capital. Why would a private investor ever risk his or her own capital in an environment where the government can just change the rules? Geithner cites the need to make sure banks have enough capital to lend when the demand for credit does come back, and therefore will determine a bank’s ability to boost lending if the government’s infusion was paid back. The fear of mass dilution, government appointed board of directors, and other disturbing consequences of government meddling in private enterprise would begin to subside if the government loans were paid back in full. Private investors would be much more willing to supply that much needed capital with the government out of the mix.
Have a great evening.
Cliff J. Reynolds Jr., Junior Analyst
Today the Fed purchased $7 billion in US Treasuries with maturities ranging from 2/29/16 to 2/15/19. Although the range of buying went into to the 10-year area, the Fed again concentrated on the shorter end of the announced range while buying $3.99 billion of notes maturing in 2016. $130 million of the on-the-run 10 year was purchased in today’s activity, but the market was expecting more in terms of that specific bond, causing the longer end of the benchmark curve to suffer.
Geithner Goes Green
Bonds sold off from their highs of the morning as the Fed announced their purchases, but that probably had more to do with stocks moving into the green as Treasury Secretary Geithner began his testimony on Capitol Hill. Geithner’s comments were seen as a positive as he backed off his previous comments hinting at converting the Treasury’s existing preferred stake into common stock. I use the word “comments” but yesterday the market saw them more as “threats”.
Geithner indicated in an interview yesterday that the health of individual banks won’t be the sole criterion for whether the Treasury will permit the repayment of TARP funds. Today’s testimony improved on yesterday’s interview, as he noted that a lower demand for credit is the major reason for the lack of lending currently and not simply liquidity being selfishly hoarded by financial institutions. I give him some credit for this because many lawmakers just continue to ignore this fact. However, Geithner is still doing his share of ignoring.
Government involvement is currently the biggest deterrent of private capital. Why would a private investor ever risk his or her own capital in an environment where the government can just change the rules? Geithner cites the need to make sure banks have enough capital to lend when the demand for credit does come back, and therefore will determine a bank’s ability to boost lending if the government’s infusion was paid back. The fear of mass dilution, government appointed board of directors, and other disturbing consequences of government meddling in private enterprise would begin to subside if the government loans were paid back in full. Private investors would be much more willing to supply that much needed capital with the government out of the mix.
Have a great evening.
Cliff J. Reynolds Jr., Junior Analyst
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