Sanderson update…


From Don Sanderson

2/23/09 Ukiah, California I was incorrect about the value of bonds to be sold this week, but ….
From Bloomberg a few minutes ago:

The Treasury Department plans to auction $40 billion of two-year notes Tuesday, a record $32 billion of five-year securities Feb. 25 and a record $22 billion of seven-year debt Feb. 26.

“With all the supply coming, people are taking it as an opportunity to short the Treasury market,” said Charles Comiskey, head of U.S. Treasury trading in New York at HSBC Securities USA Inc., one of the 16 primary dealers that are required to bid in Treasury auctions. To short is to bet the price of a security will fall.

The U.S. will probably borrow $2.5 trillion during the fiscal year ending Sept. 30, according to primary dealer Goldman Sachs Group Inc. The figure is almost triple the $892 billion in notes and bonds the Treasury sold in the previous 12 months.

“We’re dealing with a huge boatload of supply,” said Kevin Flanagan, a Purchase, New York-based fixed-income strategist for Morgan Stanley’s individual-investor clients. “We feel it will continue to hover over the market for the entire year.”

U.S. yields indicate bets on inflation have been rising over the past three months.

Fed policy makers have debated whether to purchase longer-term U.S. debt to help lower consumer borrowing costs, an option raised by Bernanke late last year.

“Buying Treasuries is not on the Fed’s front burner,” said Thomas Roth, head of U.S. government bond trading in New York at Dresdner Kleinwort, another primary dealer. “It’s something that would be a last resort type of thing. People are still hoping.”

Elsewhere, Bloomberg reports that dividends have fallen far below bond yields, ao the stock market has become uninteresting to investors. Look for a big stock market drop and 401Ks and other pension funds to disappear.

And, away we go …

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