Time to Sell Treasuries?
Today the U.S. Senate defeated the House spending bill that both funds government expenditures and defunds Obamacare. The process has been especially partisan, as Brown Brothers' Marc Chandler explains to clients this morning: "What makes the current situation seem so intractable is that the leadership of both parties seem to have limited influence over rank-and-file."
Mr. Chandler is referring to the now 16-hour-long filibuster by Texas Republican Ted Cruz to prevent another debt increase, even as Senate Minority Leader Mitch McConnell negotiates a stopgap spending measure across the aisle.
We suspect the senator will eventually lose his voice and history will repeat itself, as Congress has upped the debt ceiling 37 times over the past 50 years.
The difference this time (a point not lost on the vociferous Senator Cruz) is the amount of debt relative to gross domestic product: both clock in at $16.7 trillion.
Economists express debt as a percentage of GDP in order to quantify debt levels over time and compare debt across countries. The $16.7 trillion figure here in the U.S. implies debt to GDP of 100 percent... not a proud moment when compared to our trading partners:
Senator Cruz has a point, and so does Mr. Chandler: Printing more dollars to fund more debt erodes support for bonds and drives interest rates higher. With the 30-year bond yielding 3.68 percent, and bond prices having fallen 20 points simply on the "prospect" of Fed tapering, we tend to agree. If ever there were a time to sell the long bond, this would be it.