The man the US has put in charge of marketing US debt to the
Chinese is fittingly named, David Dollar. Mr. Dollar,
addressing a group of economic policy makers at the World
Economic Forum in China last month said, "The interest rate on
long-term treasury bonds is at a very low level by historical
standards." "That says that the market has confidence the U.S.
will get the fiscal problem under control." While a sub 3.5%
yield on the ten-year can be construed as a vote of confidence
in the US, a deeper dive into the numbers tells a substantially
different and troubling story.
In the last few years leading up to our financial crisis,
foreign appetite has been strong for 3 types of securities: US
Treasuries, US Agency bonds (i.e. bonds issued to fund Fannie
Mae, Freddie Mac, etc.), and mortgage backed securities (MBS)