As mentioned recently, global investors have been signaling their unease with the U.S. budget deficit by selling bonds and subsequently driving up yields on U.S. debt.
The U.S. government's decision to employ trillions of dollars in deficit spending as a way to try and kick-start the economy has resulted in higher inflation expectations and higher borrowing rates on everything from mortgages to credit card debt.
The yield on 10 year Treauries has increased 1.5% from the start of the year. This is a meaningful increase from a relatively low starting point that was just over 2%.
The actions of global bond investors could impact the Obama administration's ability to revive the economy through deficit spending.
In contrast to years past, much of the pressure is coming from investors outside of the United States:
“The vigilante group is different this time around,” said Mark MacQueen, a partner and money manager at Austin, Texas- based Sage Advisory Services Ltd., which oversees $7.5 billion. “It’s major foreign creditors. This whole idea that we need to spend our way out of our problems is being questioned.”
Source: Bloomberg
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