Renewed Demand For Treasuries
The yield curve has started to flatten once again as renewed demand for Treasuries Securities has seen it’s price climb once again this month. Despite optimism from some circles, investors remain skeptical that the economy will rebound any time soon.
The Federal Reserve reaffirmed it’s stance this month to keep interest rates at their current level at least through the end of the year, which will probably be necessary since the banking system is still in a weakened state. Also, with the housing market in it’s current state, there will be pressure to keep mortgage and other consumer interest rates low as well.
Even with the long term implications of the government’s massive debt, most experts expect short run inflation to be muted with the economy likely to show little growth for the next two years. With confidence in price stability for the time being, the Fed can concentrate it’s efforts on fixing a bleak employment picture.
Much of the renewed interest in Treasuries has to do with a lack of confidence in the stock market. There have been a few spurts here and there that have coincided with a rise in yields over the last six months but there have been no sustainable rallies.
Investors are jumping in and out of the stock market, taking profits and blunting rallies and quickly returning to Treasuries for shelter. Many expect this scenario to continue for the foreseeable future as falling corporate earnings and weak consumer demand are expected in the upcoming quarter.
For now even though the supply of Treasury securities are going to climb in the near future, demand remains strong for the time being.
