Thursday, March 26, 2009

Government Debt Investors Revolt

The past 48 hours have brought interesting developments in both the US and UK Government bond markets. In the United States, a Treasury auction of $34Billion of five-year notes drew meager levels of support at the intitial yield offered by Treasury, forcing the Government to bribe investors with higher yields. In the United Kingdom, the Government lacked the ability to complete its most recent gilt auction altogether, resulting in an actual auction failure.

Now, in a world where Government policy Influencers could assess market developments in an apolitical, cogently sound fashion, the recent activity in the Government bond market could be construed as a good thing. The reason being, any honest observer would process the auction developments and conclude that, perhaps, a break should be taken from the Debt Agglomeration Rampage.

We interpret the happenings in the US market to be quite similar to when one feels his car sputter or stall for the first time. Often times, the internal cause of the first sputter will be readily identifiable. However, the human tendency is to avoid the inconvenience and expense of bringing the vehicle to a mechanic at first sign of trouble, and instead wait until the issue has become sufficiently problematic and presents the possibility of permanent damage.

Yesterday, the US Government's primary operation funding vehicle  experienced a very minor engine sputter. In the near term, such disruptions are likely to remain sporadic and isolated in nature. However, if the United States Government continues to travel down its current path, and delays the necessary engine repairs, the Consequences Will Be Severe.
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