| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Fed’s Fisher Says U.S. Can’t Ignore Deficit’s Effect on Yields |
By Vivien Lou Chen
March 31 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard Fisher said the U.S. can’t “turn a blind eye” to the effect that the growing federal deficit is having on Treasury yields and the outlook of investors.
“Even under the most optimistic of scenarios, large deficits will be run for as far as the eye can see,” Fisher said in a speech yesterday in Tucson, Arizona. “The markets, fearing the consequences of runaway deficit financing, have bid up longer-term nominal rates, resulting in a yield curve that is now historically steep.”
Fisher’s remarks underscore the view expressed last week by former Fed Chairman Alan Greenspan, who told Bloomberg Television that he’s “very much concerned” about the financial situation of the U.S. Greenspan said higher yields are a “canary in the mine” that may signal further interest- rate gains and reflect investor worry about the “huge overhang of federal debt.”
“Some of this, of course, may reflect an improvement in economic growth,” which should be about 3 percent this year, Fisher said during the speech at the University of Arizona’s Eller College of Management.
Still, “we cannot turn a blind eye to the effect that growing government indebtedness has on investors’ confidence and Treasury yields,” said the bank president, 61, who has led the Dallas Fed since 2005 and doesn’t vote on the Federal Open Market Committee again until 2011. The Fed shouldn’t step in to buy Treasuries just to hold longer-term rates down, which would create the perception that policy makers are “monetizing the debt,” he said.
Benchmark for Yields
Treasury 10-year note yields, the benchmark for everything from mortgages to corporate bonds, climbed to 3.92 percent on March 25, the highest level since June, from a low of 3.53 percent in February. The 10-year note yield fell less than 1 basis point, or 0.01 percentage point, to 3.86 percent at 4 p.m. yesterday in New York, according to BGCantor Market Data.
“The good news is that we are beginning to see some rays of sunshine emerge from the leftover clouds of the frightful storm we have just experienced,” Fisher said. Even so, “the skies are far from clear,” with too many unemployed workers and a “precarious” housing situation, he said.
Economy Grew
The U.S. economy grew at a 5.6 percent annual rate in the fourth quarter, the fastest pace in six years, figures from the Commerce Department showed last week. Consumer spending rose 0.3 percent last month, according to the Commerce Department, which may help retailers such as Best Buy Co. sustain profit gains.
The budget deficit reached a record $1.4 trillion for the fiscal year that ended Sept. 30 amid falling tax revenue from the recession, a bailout of the banking and auto industries, and the $787 billion economic stimulus package. The Obama administration in February projected the shortfall would widen to $1.6 trillion this year.
The Fed’s purchases of assets such as Treasuries and mortgage-backed securities have helped push down borrowing rates.
Central bank officials are focused on restoring the Fed’s balance sheet to “a more normal configuration,” said Fisher. He said policy makers should be wary of selling assets in a “disruptive” way or releasing excess bank reserves so rapidly that it triggers inflation pressures.
‘Hunger’ for Securities
“I sense a hunger in the market for some of those securities,” he said in response to audience questions after the speech. “We’re just going to have to figure out the right time to sell them back into the market.”
Lifting the U.S. benchmark interest rate from near zero is not on the “front burner” because the economy is operating with a large amount of slack, or unused capacity, Fisher said. When the time comes to raise borrowing costs, the Fed will need to act “very deliberately.”
The Fed said it would end a program to buy $1.25 trillion in mortgage-backed securities this month. The regional bank chief told reporters he doesn’t think it’s “going to be necessary” to revisit the program.
--Editors: James Tyson, Russell Ward
To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net
To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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Income Security Recommendation January 2013 Issue.
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