2006_06_30 — “The values of U.S. Treasuries have continued to decline”

The values of U.S. Treasuries have continued to decline

The values of U.S. Treasuries have continued to decline and will keep deteriorating as long as the Federal Reserve raises rates and government data shows economic strength. Further downward pressure has come from foreign central banks that have been net sellers of Treasury notes for several reasons:

  • Central banks are diversifying away from the dollar into gold and other currencies
  • As Europe and Japan raise their rates relative to the US, the favorable interest rate gap will diminish further
  • Foreign confidence in Bernanke is not as strong as American confidence
  • Rising leverage costs as short-term borrowing rates increase
  • Falling dividends because of rising interest expenses
  • Low relative fund yields as market interest rates have risen (e.g., 2-year Treasuries now yield 5.15%)
  • Corporate credit concerns are high as the current economic boom matures

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Michael Ashley Schulman

Michael Ashley Schulman

Avid traveler and art fan, also Partner & Chief Investment Officer @Running Point Capital, a multifamily office and ultra high-net-worth money-management firm