THIS POST IS A YEAR IN THE MAKING.
We discovered it unpublished in our web archive today and as the theme is still very relevant today, we decided to publish it:
Today’s brief analysis of US Treasury Yield curves and the Debt profiles of both the USA and Italy highlights the enduring question in the title of this post.
The first graphic highlights one important issue. We chose 2 August 2011 versus 17 February 2012 as key dates to compare the US Treasury Yield curve. If we cast our minds back to 2 August 2012 two key facts emerge:
- This was the D-Day of the US Debt Ceiling vote
- The US still had a Triple A credit rating
The key take-away from the Yield Curve comparison is that even with a ratings downgrade, the US is actually able to borrow new capital at a lower rate of interest 6 months on.
However, to pour a bit of realism into the analysis, we highlight two interesting Debt profile graphics below.
The first one is the USA Treasury Maturity curve (admittedly 6 months out of date), highlighting when the current debt will need to be redeemed or rolled over. The second is the Italian Bond Maturity curve. You will notice just how similar the USA and Italy Debt Maturity profiles are.
From this comparison, the critical question currently for us is:
Where will all the new money come from to roll over the debt maturing during the next 3 – 12 months? QE is one option, but investors still need to be convinced that their capital is safe and relatively risk-free. It is the Risk-free equation (or investor risk appetites) that needs to be explored in more detail.
theMarketSoul ©2012
PS. Off course QE was the option and still remains so, for the moment…
Related articles
- US Treasury Yield Curves – Revisited mid July 2013 (themarketsoul.com)
- Inverted Yield Curve: The Curious Case of Benjamin Button (pramodshukla519.wordpress.com)
- Inverted Yield Curve (investmentattitude.wordpress.com)
- Obama’s Choice: Summers or Yellen? (Yield Curve Higher Than When QE Started) (confoundedinterest.wordpress.com)
- How Does the Debt Ceiling Affect Me? (lexingtonlaw.com)
- Bernanke, Bill Gross Boost ‘Five-Seven Year Treasurys’ (blogs.wsj.com)
- Draghi Impotent as Fed Trumps ECB on Yield Curve: Euro Credit – Bloomberg (bloomberg.com)
- Why The Man Who Should Run The Federal Reserve Never Will (forbes.com)
- Debt Management: How to Handle Debt (quicken.intuit.com)
- QE Not Working Out as Planned, but Hey, I’m Just a Caveman Economist (minyanville.com)
