US faces borrowing crisis

[wbosher]

Uh oh...got this from Stuff website this morning. A lot of you probably already know, but for those who dont:

http://www.stuff.co.nz/business/world/4519101/US-faces-borrowing-crisis

[belgarion]

Not much to worry about there as it occurs frequently. All that happens is that congress leave it to the last minute and then just bump the borrowing limit up. For all the republican bluster about cutting deficits and reducing the footprint of govt, I'm not expecting anything different this time around.

What was bit more interesting recently, perhaps even sinister and perhaps a prelude of things to come, was the auction of US govt bonds where there was a very poor takeup. This was explained away as being due to christmas and the usual buyers being on holiday or distracted. The following auctions were back to normal (apparantly) so maybe that was true. That said tho, reports of who the purchasers were were pretty scarce. Bond buyers may be getting a little concerned about the face value and may not be happy with the very low i-rates on offer. If the bond vigilanties get really tough, QE2 will fail abismally and i-rates will march upwards. And then things will get very nasty indeed for the US.

[wbosher]

What was bit more interesting recently, perhaps even sinister and perhaps a prelude of things to come, was the auction of US govt bonds where there was a very poor takeup.

Isn't it true though that when the stockmarket is ticking along nicely, people tend to steer away from bonds? Couldn't that simply be the case, or is it not that simple?

[belgarion]

It is in my case true. :)

But not overall ... The bonds are traded, just like shares, so at any time the price a bond is traded at reflects its "value" and not necessarily its face value. I'll try and find a few links to post as I feel many on ShareTrader are overlooking this asset class and recently the NZX has done an okay job promoting avtion more action on the NZX. Unfortunately, liquidity is still pretty low. With a bit of knowledge and study you can make a killing. HBY010 was doosy for me and I think W69 might have had a dabble too. Isn't that right W69?

[belgarion]

http://www.investinginbonds.com/learnmore.asp?catid=46&id=266 ... A nice friendly intro. Read all the sections in the left menu.

And Brent Shearer (one of my fav commentators as he uses maths! rather than waffle! Mary take note please!) .. http://www.nzherald.co.nz/brent-sheather/news/article.cfm?a_id=34&objectid=10670955

http://en.wikipedia.org/wiki/Bond_(finance) ... Heaps and heaps of info. And if you follow the links (and are mathematically non-challenged :) ) ways to help establish the "value" of a bond.