The US Treasury will need to borrow $3.25 trillion this fiscal year, including sales to replace maturing securities. This will place significant over supply pressure on debt markets. Treasury notes dropped for a second week as investors show a growing concern over the vast supply coming on board.
The US Treasury is attempting to prop up the debt market by buying back $300 billion of supply. However, this is only delaying the inevitable rise in interest rates and decrease in debt prices, that will occur when the US ceases its debt buy back spending spree at fiscal year end six months from now .
Proof of trader skepticism is evident in the recent drops in T-notes the last two weeks, despite the first US Treasury debt buy backs since the 1960's.
Because of this enormous current account deficit, we are dependent upon foreign capital to increase demand for our debt. This presents an extremely bearish environment for the US dollar. Since crude pricing is in US dollars, a weaker dollar means a higher price will be paid for crude.
Crude supplies are at record peaks, with demand falling. However, alert traders are looking out six months ahead to when the Treasury fiscal year ends, and thus the end of debt buybacks. They are positioning themselves now for the inevitable US dollar weakness and energy complex bull run.
No comments:
Post a Comment