When does the 'flight to safety' stop? US treasury yields still hold up. How long until subprime morphs into a full-blown currency crisis? Surely, at some point, the thought that the Yanks could default on their debt must enter investor's heads. I am not saying they will default - personally I think the US has the weight in numbers and existing financial infrastructure to see this through.
But yield is a measure of risk and the more the Yanks bail out Wall Street, buy commercial paper and raise overall US debt (vs GDP and tax revenue), the risk of default is higher and this the yield must rise!
It is just foolishness on the part of the US investor to simply trust US treasuries as a 'safe haven'.
Good news for the price of gold!!
From The Age:
To sovereign risk: will the bond market crack?
A 30-year graph of the US 30-year Treasury bond shows a generational bull-market. The yield on the bellwether bond peaked at 15% in 1981 and has been in decline ever since, rallying that is (bond prices are the inverse of yields). It now stands at 4%.
The ``flight to quality'' in the present cycle fuelled the recent demand. Realistically though, given the parlous state of the US economy and banking system, is 4% enough risk premium for owning an asset whose principal may never be repaid?
The interest burden is enough, especially in light of the looming recession, pressure on tax receipts, record consumer debt and a deficit approaching $US1 trillion. The American empire is in terminal decline.
Ask yourself, if the US were a company, would you invest in it? The management isn't exactly inspiring, let alone the numbers.
Yet the question must be asked: when confidence and trust are shattered will lowering rates bring borrowers back to the market?