Thursday, March 19, 2009

Who will buy the rest?

The Treasury bond market went wild yesterday after the Fed announced it will buy $300 billion of Treasury bonds. The 10-year Treasury rate fell from 3.00% to 2.53%, the biggest decline in years.

While $300 billion is a lot of money, the expected deficit this year is $1.75 trillion. So after the Fed buys their chunk, who will be buying the other $1.45 billion? The market got excited about yesterday's news, but the fundamentals are still working against Treasury bonds.