Watch bonds

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National Debt Clock

Precious Metals Blog

Monday, July 27, 2009

Watch bonds

Today's short terms sales for t-bills isn't what to watch. Watch bonds. The 115 billion in notes isn't as important, either.

Today, any nation that is moving out of long term debt and replacing it with short term bills and notes will create the impression this is good.

But, I see the 10 year bond yield is up to 3.73%

If nations continue moving out of the longer term bonds, it causes two problems.

One, it raises the yields and causes mortgages to go up or forces the fed to buy more to keep the yield lower.

Two, it places the debt more into the short term bills and notes and any need to raise rates by the FED when inflation does need to be controlled, means interest on debt goes up much faster.

That is why "watch bonds" is not only important now, but when we have to start raising rates again some day. The CBO is already projecting a quadrupling of interest on debt during this and the next 2 presidential terms. I believe it will reach that level much sooner because of this move to shorter term debt.

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