November 14, 2010

In Denial: AP Report Dodges Obvious Potential Reasons For Friday Dive in U.S. Bond Prices

Bond see-sawWhen you increase demand for something, its price should go up.

In the case of bonds, if the demand for them increases, their price should go up, and their effective interest-rate yield should go down.

That didn’t happen on Friday when the Federal Reserve began executing its second round of “money from nothing” quantitative easing. Even though the Fed increased demand, bond prices went down and yields went up.

Why? If you read a late Friday afternoon report by the Associated Press’s Matthew Craft you essentially get a bunch of blubbering “I don’t know” statements (bolds after headline are mine):

Treasury prices take a dive; Interest rates jump

The Federal Reserve put its latest stimulus plan into action on Friday, buying government bonds in the hope of lowering long-term interest rates. But instead of sinking, interest rates jumped.

The yield on the 10-year Treasury hit 2.78 percent, the highest level since Sept. 10. The two-year yield, which had hovered around 0.40 percent for months, rose to 0.51 percent, a large move for that security.

The Fed bought its first batch of Treasurys since announcing its $600 billion plan to boost the economy last week. The central bank picked up $7.23 billion in Treasurys coming due between 2014 and 2016.

Buying bonds on a large scale should drive down long-term interest rates. Pushing bond prices up knocks yields down, and Treasury yields act as benchmarks for other lending rates. But Treasury prices dropped after the Fed bought its bonds, sending their yields sharply higher.

What happened? “It’s complicated today,” said Guy LeBas, chief fixed income strategist at Janney Capital Markets. “There’s just a lot going on.”

A collection of trends and events arrayed against Treasurys. Worries Ireland would default on its debt eased on Friday. LeBas said that gave European government bonds a lift while diminishing Treasurys’ appeal. As Treasury yields were climbing, Ireland’s 10-year bond yield dropped from 8.89 percent to 8.13 percent.

Foreign central banks, reliable Treasury buyers, weren’t around to help, said Tom Tucci, head of Treasury trading at RBC Capital Markets.

… Some banks decided it was time to sell. Tucci said central banks were dropping five-year Treasurys this week, a rare sight. “That’s the first time I’ve seen central bank sellers in I don’t know how long,” he said.

Geez, an eight year-old kid can come up with more creative excuses than the ones LeBas and Tucci offered. An eight year-old can also probably come up with better excuses as to why his or her former friends don’t seem to want to play games together any more.

I would also hope (probably in vain) that the AP can come up with a better term that “stimulus” to describe what Bernanke is doing. How about “electronically creating money”?

Let’s buy Craft, LeBas, and Tucci a couple of clues:

  • One item that can heavily weigh down bond prices is inflation expectations. The beginning of Big Ben’s binge constituted final confirmation that the Fed is willing to risk inflation by creating hundreds of billions of dollars out of nothing. The size of the first day buy, if kept up on each business day — or even every other business day — will use up the $600 billion planned amount much faster than the announced eight months (600 divided by 7.23 is about 83 days). When future inflation expectations go up, bond prices go down, and bond yields go up.
  • Another factor is default risk. Bond investors need to be confident that they will get their principal back at maturity. The fact is that Big Ben’s binge has been pressed into service because the administration and the current Congress have refused to do anything to get fiscal policy in order, running up the national debt by over $3 trillion since Barack Obama took office. Perhaps bond investors are losing confidence that this country will ever get its fiscal house in order. If we don’t, there is a high likelihood that we will see the Mother of All Defaults occur. When perceived default risk increases, bond prices go down, and bond yields go up. Greece is paying effective double-digit rates on its government debt for a reason.

C’mon, guys — especially the AP’s Craft. One or both of the aforementioned elephants is more than likely already in the room; if not, they’re knocking very loudly at the door. Why not say so? It beats the heck out of insults to our intelligence like “it’s complicated,” and “there’s a lot going on.” Zheesh.

Cross-posted at

NYT’s Chan Pens Two Puff Pieces to Offset Thursday ‘Obama Rejected at G-20′ Faux Pas


Don’t go overboard with it, but have some pity on Sewell Chan at the New York Times.

On Thursday evening online and in Friday’s print edition, Chan was among three Times reporters who composed a report ripping President Obama’s lack of results at the G-20 summit. The piece’s original title — “Obama’s Economic View is Rejected on World Stage” — originally appeared online and actually made its way into the print edition. The headline apparently didn’t sit well with someone at the Times. As I noted in a previous post (at NewsBusters; at BizzyBlog), it was changed to “Obama Trade Strategy Runs Into Stiff Resistance” sometime on Friday.

That was apparently not enough to satisfy whoever is charge of politically correct revisionism at the Times. Chan seems to have been assigned the thankless task of composing not one, but two, kiss-and-make-up pieces to smooth things over.

Here are a few paragraphs from the first related item, complete with a laughably absurd headline and obvious internal contradictions:

Summit Shows U.S. Can Still Set Agenda, if Not Get Action

It could have been far worse.

That was the consensus among the leaders of the Group of 20 economic powers as they dispersed Friday, following a two-day summit meeting dominated by anxieties over currency and trade frictions. In their fifth meeting since the 2008 financial crisis, the leaders agreed in essence to a year-long cooling-off period during which they will slowly tackle persistent economic imbalances.

“In Seoul, there was too much jostling over currencies, deficits and exports for the G-20 leaders to make any significant breakthroughs,” said David Shorr, who studies economic diplomacy for the Stanley Foundation, an organization in Muscatine, Iowa, that advocates international cooperation. “But there was also enough concern to avert a disastrous breakdown.”

The meeting still showed the power of the United States to set the agenda for international discussion, even if the result — charging the International Monetary Fund with analyzing the sources and consequences of the imbalances — was far less robust than American officials had hoped for.

… in interviews here, officials from Europe and the United States said that weakening, specifically the decision by the Federal Reserve to inject $600 billion into the economy, was not a major topic of discussion in the leaders’ private meetings.

… Mr. Obama found himself defending the Fed’s decision buy government bonds to lower long-term interest rates, even though he has tried to avoid commenting on the central bank, an independent entity.

At the leaders’ dinner on Thursday, Mr. Obama acknowledged that the Fed’s monetary policy offered the most promising course of speeding the American recovery, given the political impediments to any additional fiscal stimulus measures, according to Mr. Barroso.

So let’s see:

  • Our country’s ability to prepare a to-be-discussed list is really, really crucial, even if the list isn’t followed and tangible results aren’t achieved.
  • “It could have been worse,” even though whatever Obama thought was important was put off for a whole year, which in diplomat-speak usually means “We’re putting those items way out there into the future, in the hope that conditions change enough in the meantime that we never have to really discuss them.”
  • Ben Bernanke’s QE2 wasn’t a major topic — so not-major that Obama “found himself defending” it.

All of this makes perfect non-sense to me.

Chen’s second penance, which was posted online on Friday and appeared in Saturday’s print edition, was to make it appear as if Obama’s tempter tantrum over China’s lack of cooperation was really an example of being tough:

Obama Ends G-20 Summit With Criticism of China

The Group of 20 major economies took initial steps to address imbalances in the global economy on Friday. But they did not act as assertively as President Obama had hoped, and he left little doubt that he considered one country, China, the primary source of the problem.

Scrapping a longtime practice of speaking with diplomatic caution about China’s currency policy, Mr. Obama accused Beijing of intervening aggressively to keep its currency, the renminbi, below its market value to promote exports. He said it was a mistake for nations to think that “their path to prosperity is paved simply with exports to the United States.”

“Precisely because of China’s success, it’s very important that it act in a responsible fashion internationally,” Mr. Obama said at a news conference at the conclusion of the economic summit meeting here. “And the issue of the renminbi is one that is an irritant not just to the United States, but is an irritant to a lot of China’s trading partners and those who are competing with China to sell goods around the world.”

Though his own Treasury Department, like those of prior administrations, has certified that China is not a “currency manipulator,” a designation that can prompt Congressional trade action, Mr. Obama appeared to remove the remaining wiggle room he had on the subject of the renminbi, declaring: “It is undervalued. And China spends enormous amounts of money intervening in the market to keep it undervalued.”

The tougher language seems likely to add tension with China, which has already sharply criticized the Obama administration’s decision to try to mediate territorial disputes involving China and its East and Southeast Asian neighbors.

But Mr. Obama’s efforts to persuade China to act on its own, or as part of a collective commitment by big economies to address trade imbalances, have yielded only incremental steps, raising the possibility of a contentious and awkward prelude to a state visit to Washington by President Hu Jintao of China scheduled for January.

Well, if China is manipulating its currency, haven’t we lost the so-called ‘high ground” in the discussion with Ben Bernanke’s second round of “money from nothing” quantitative easing?

Let’s hope this puts Sewell Chan back in good graces with the higher-ups at the Times. After all, the chances that Chan will break down somewhere down the road and tell the whole truth in another report are much higher than, say, David Leonhardt’s.

Cross-posted at

Positivity: Let Us Now Praise Famous Women

Filed under: Life-Based News,Positivity — Tom @ 6:50 am

From an American Spectator column by G. Tracy Meehan III:

11.11.10 @ 6:07AM

The noise of the electoral season is no excuse for failing to remark on the passing of a great woman and, more importantly, celebrate her life. Let me make amends.

As reported by Dennis Hevesi in the New York Times’ Obituaries for October 19, “Dr. Mildred Jefferson, a prominent, outspoken opponent of abortion and the first black woman to graduate from Harvard Medical School died Friday in Cambridge, Mass. She was 84.”

Dr. Jefferson, a surgeon, was appalled by the 1973 decision, Roe v. Wade, which legalized abortion on demand for all nine months of pregnancy, up to the moment of birth. This decision, along with its evil twin, Doe v. Bolton, struck down all state restrictions on the practice, effectively allowing abortions in almost any circumstances including mere convenience.

Jefferson testified before Congress that these decisions “gave my profession almost unlimited license to kill.”

“With the obstetrician and mother becoming the worst enemy of the child and the pediatrician becoming the assassin for the family, the state must be enabled to protect the life of the child, born and unborn,” said the good doctor.

Dr. Jefferson, a native of Texas, was a founder and president (for several terms) of the National Right to Life Committee (NRLC), a federation of 50 state organizations and more than 3,000 chapters. She also served as director of Massachusetts Citizens for Life [] and was active in Black Americans for Life.

She also found time to practice surgery at Boston University Medical Center and serve as a professor of surgery at the university’s medical school.

By all accounts, including this writer’s own observation, Dr. Jefferson was a charismatic leader. “She was probably the greatest orator of our movement,” asserts Darla St. Martin, co-executive director of the NRLC. “In fact, take away the probably.”

“I am at once a physician, a citizen and a woman, and I am not willing to stand aside and allow this concept of expendable human life to turn this great land of ours into just another exclusive reservation where only the perfect, the privileged and the planned have the right to live,” said Dr. Jefferson in a 2003 profile in the American Feminist.

Reading Dr. Jefferson’s obituary caused me to recall the many great women I had the privilege of working with in my early days, right out of law school, as the right-to-life movement emerged in my hometown of St. Louis. My wife, mother and aunts were among them. I had the same experience years later in Michigan.

Go here for the rest of Meehan’s column.