Megatrend

5 May 2009 By Martin Hutchinson

Seasonal funding needs, huge government borrowing requirements, green shoots of economic stabilisation or recovery and the inflationary effect of Fed liquidity creation are combining to send Treasury bond yields upward. They may go a lot higher, quite quickly.

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The Treasury Borrowing Advisory Committee in a report April 29 estimated that the US Treasury's net funding requirement would total $2 trillion in 2009; the average maturity of borrowings has fallen from 70 months in 2000 to 49 months recently. It believed that the inevitable improvement in economic conditions would result in fewer inflows into Treasuries from the private sector, while record borrowing programs internationally could provide competition for Treasuries among foreign buyers. It reinforced the need to lengthen maturities and reduce reliance on bills.

From 1999 to 2008, the average federal deficit in January to April was $7.6bn, the average deficit in MayAugust was $127.2bn and the average in JulyDecember was $70.8bn. April was the best month of the year, with an average surplus of $127.3bn.

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