Ben better start buying more bonds

Yields on long-dated U.S. debt are now in nose bleed territory, the return on the benchmark ten-year Treasury now careening quickly toward the once unthinkable "four percent" level as detailed in this report at Bloomberg.

Treasuries fell for a fourth day, pushing 10-year note yields to a six-month high, amid concern record U.S. debt sales will overwhelm investor demand as the economy begins to show signs of stability.

Government debt declined even as today’s auction of a record-tying $35 billion in five-year notes drew the most demand in three months from a group of investors that includes foreign central banks. The Treasury will sell $26 billion in seven-year notes tomorrow, the third auction this week.

“The reality is that we have one more auction left and a lot of supply,” said Kevin Giddis, head of fixed-income sales, trading and research at the brokerage Morgan Keegan Inc. in Memphis, Tennessee. “This is the beginning of a lot of sales. We are in a bit of a freefall.”

While the relationships between such securities as U.S. Treasuries and mortgage debt have become a bit muddled now that the government and its central bank are a major player in nearly every debt market, rising ten-year yields will surely push up mortgage rates.

Won't they?

Maybe not.

It seems that all American debt is in the process of becoming U.S. government debt and maybe the Fed has some kind of "grand unification theory" in mind where it all trades at the same price, offering the same return to investors.

We really are, in the words of Bill Bonner at the Daily Reckoning, an Empire of Debt and, so far, the rest of the world is still OK with that.

The U.S. has raised $720.057 billion in new cash this year selling Treasury securities, while the Federal Reserve has purchased $130.5 billion in U.S. debt. The net new cash raised in 2009 by the U.S. is $595.523 billion.
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Indirect bidders, the class of investors that includes foreign central banks, bought 44.2 percent of the five-year notes, compared with an average of 32.4 percent in the last 10 auctions.
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Speculation that the U.S.’s top-credit rating may be under threat has risen since Standard & Poor’s cut Britain’s outlook to “negative” from “stable” last week, citing the nation’s soaring debt burden. The U.S.’s $11.2 trillion of debt is about 79 percent of the $14.1 trillion in gross domestic product, according to Bloomberg data. In the U.K., the debt to GDP ratio approaches 100 percent.

The U.S.’s credit rating is supported by “a diverse and resilient economy, strong government institutions, high per capita income, and a central position in the global economy,” New York-based Moody’s said in a statement.

Well, actually, the Chinese are starting to get a littly antsy about extrapolating recent trends far out into the future. In this WSJ interview with Dallas Fed President Richard Fisher last weekend, the U.S. monetizing its debt seems to be something that concerns them greatly.