You would think the failure of Congress to enact a federal budget would distress the financial markets; you would think with the Treasury fast approaching its borrowing ceiling, interest rates on the federal debt would be increasing.
Quoting a report by Reuters , “The U.S. Treasury on Tuesday started using its last tools for pushing back the day when the government will run out of legal borrowing authority, Treasury Secretary Jack Lew said,” reveals more somber news –that should cause a dumping of federal IOU’s. Such sales would push up the effective yield of Treasury bonds.
Yet, as our diagram indicates, the yield of the benchmark Ten Year Treasury paper has declined.
It could be that the Federal Reserve, in its role as the underwriter of U.S. government debt, is conducting an aggressive campaign of supporting the Treasury IOU’s. That the Fed is purchasing all the debt that frightened investors are dumping, before prices fall –or interest rates rise- even further.
That could be, and yet, even if this scenario were happening, it is strange that the interest rate of the Ten Year Treasury debt has declined since the beginning of September.
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