As of mid-day Friday, April 30, the government bond market was on track to have a good week, with prices up (and therefore yields down, because they move in opposite directions).
According to the financial press, a key driver was end of the month effects (managers needed to buy newly auctioned Treasury instruments, to close the loop on their monthly portfolio strategies).
Safe haven effects from the sovereign debt crisis in Greece were also thought to increase demand for U.S. Treasury instruments.
Be sure to join America Speaks this afternoon from 3 - 4:30 pm for a National Briefing on Our Budget and Economy. A panel of experts, including Maya MacGuineas, Alice Rivlin, David Walker, Alison Fraser, and Bob Greenstein, will discuss the country's fiscal health and will respond to questions posted by viewers over the internet.
The webcast of the event is below.
As of mid-day Friday, April 23, the yield curve looked steeper for the week (that is, interest rates rose on Treasury instruments at the longer end of the maturity spectrum). Market commentary was cited as the main driver, the response of investors to stronger than expected U.S. data suggesting that the recovery was taking hold. As the U.S. and global economies show signs of returning to some sort of normal, investor interest in U.S.
Airline traffic may not be the only thing slowed by Iceland’s volcanic eruptions. The slow-moving, fragile economic recovery may take a hit as well. While a just-released report from the International Monetary Fund predicts stronger worldwide growth than previously predicted, the projections were made before the volcano erupted.
The big question now is: Did the volcano blowing its stack cause enough damage to cool optimism about a recovery?
According to the IMF, we are entering a new phase of the economic and financial crisis: the world has averted a depression, a recovery is taking hold (multispeed, depending on the country), and the recovery looks stronger than it had expected in the fall.
US growth this year is expected to be 3.1% (about half a percentage higher); and 2.6% next year (slightly higher). The Fund attributes the US recovery to fiscal stimulus, and notes that private demand remains weak.
Here are the highlights from this weekend’s editorials on fiscal and budget policy:
U.S. Treasury markets were relatively quiet most of this week, although some Friday morning news had translated into market gains, as of early afternoon. (Most notably mentioned, the SEC indictment of Goldman Sachs moved investors from stocks to bonds and lower consumer confidence in early April suggested a weak recovery in the near term.)
Commentators generally reported that demand was bolstered by safe haven effects related to continuing uncertainties with Greece’s sovereign debt challenges and possible concerns about other high debt Eurozone members.
A great debate is breaking out over concerns for our growing debt, and it is centered around interest rates on Treasury securities. A fear held by many, including CRFB, is that growing deficits will cause investors to demand a higher risk premium on Treasuries, causing interest rates to rise and hurting the overall economy as a result. Commentators on both sides of the debate have used interest rates as proof of investors' level of concern regarding the fiscal outlook.
For budget and market watchers, the month of March has been a little scary. It is not easy to come out of the deepest recession and financial crisis since the 1930s, particularly when the fiscal outlook and prospects for its successful management are so uncertain.
Sovereign risk jitters are on the rise as markets are being asked to digest massive amounts of government debt, at the same time the supply of private sector debt going to market is increasing and investors' appetite for risk is returning. The changes underway are complex and shifts could well be sudden.