Thursday, February 5, 2009

Open the Floodgates

The US Treasury on Wednesday opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in the months to come.

I've talked before about foreign nations starting to get a little leery of buying more of our debt.

The Treasury said it would sell $67bn (£46bn) in new securities next week, the largest ever quarterly refunding, beating the last peak in August 2003. It may also start monthly sales of all its benchmark Treasury securities.

At the end of February, the Treasury will start selling seven-year notes every month for the first time since the issue was discontinued in 1993. Sales of 30-year bonds will double to eight times a year and the Treasury will say in May whether the bond will be sold every month.


In recent years, demand for US government debt has been stoked by developing countries running huge trade surpluses with the US and recycling dollars by buying Treasuries. However, many are facing growing pressure to stimulate their own economies and are seeing their current account surpluses decline as global demand diminishes.

As the effects of this recession hit the rest of the world, we should be very concerned that foreign nations aren't going to want to buy a ton more of our debt.

How long before the tap gets turned off, and what will we do with all these entitlement programs then?

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