If there is one institution that is in desperate need of a stress test it's the US government. On 7 May the government auctioned $14 billion of 30-year bonds. The yield was 4.28 per cent, much higher than predicted by analysts. When the result became known Treasuries immediately dropped. For those readers who are unaware of the link between bond prices and yields, when the latter rises bond prices fall. This event followed closely behind the UK's failed bond issue. It sure as hell seems that the markets are worried by these governments' financial incompetence. And so they should be.Just as I have said. Several times actually. You're probably getting tired of hearing it... But believe me, you'll be hearing more of it, more than you ever wanted to hear. We are all about to become intimately familiar with the relationship between bond prices, interest rates, and inflation. We'll be a nation of experts! But I doubt we'll learn our lesson.
Tuesday, May 12, 2009
Gerard Jackson Concurs
Gerard Jackson opines on the developing debt crisis: