Deficits Don't Matter as Geithner Growth Gets Lowest Yield

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Deficits Don't Matter as Geithner Growth Gets Lowest Yield
http://www.bloomberg.com/news/2010-07-26/deficits-don-t-matter-as-geithner-gets-record-low-yields-during-expansion.html

For all the criticism of record budget deficits, President Barack Obama can take comfort knowing that for the first time in half a century, government bond yields are declining during an economic expansion and Treasury Secretary Timothy F. Geithner is selling two-year notes with the lowest interest rates ever.

The combination of record-low yields on two-year notes, 10- year rates below 3 percent and a deficit projected to surpass $1.4 trillion for a second consecutive year is a signal that the bond market is less concerned with government spending than with getting the economy back on track.

“The U.S. has been granted more time,” said Anthony Crescenzi, a portfolio manager and strategist in Newport Beach, California, at Pacific Investment Management Co., which oversees more than $1 trillion in assets. “Because of the concerns in Europe, money has flowed to the U.S., and so it does allow the U.S. to play the game for longer, and kick the can down the road on deficit reduction.”

Yields on two-year notes fell to 0.5516 percent on July 23, the lowest since regular sales of the securities began in 1975, on signs the expansion that began in the third quarter of 2009 is losing steam. Ten-year yields dropped to a 15-month low of 2.85 percent on July 21 as Federal Reserve Chairman Ben S. Bernanke said the economic outlook is “unusually uncertain” and the central bank is prepared to take more policy actions.

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