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The US government role in the bond market in 2011
Finance & Accounting
Pages 3 (753 words)
Your name Professor’s name Subject: Finance and Accounting Date submitted The US government role in the bond market in 2011 a. Article “2011 US Treasuries / United States Bonds Outlook & 2010 Year-End Review” Measures of underlying inflation have trended lower during the first few months of 2010, which raised fears of Japan style deflation (economically worse than high inflation). However, European debt downgrades have caused investors to move back into “safe” US treasuries particularly starting in the second of 2010, which pushed the yield closer to two year lows (prices closer to two year highs).
This fueled bond investors’ purchase of US government debt. During the week of 8/23/2010 investors continued to buy large amounts of US government bonds (treasuries), while selling off stocks. Investors can usually buy treasuries directly or more commonly through bond funds. Bond funds had attracted US$559 billion industry-wide in the past 30 months through June 2010. Bonds returned 16% within that 30 month period, while stocks returned -26%. Investors had removed US$209.4 billion from domestic (US) equity funds, as well US$24.4 billion from funds that purchase non-US stocks. With the increase in price, the yield on the 10 year US Treasury note had declined to 2.41% in October of 2010, the lowest level since Dec 2008 (when it was less than 2.20% during the height of the financial crisis). This meant that equities had become cheap (i.e. stocks were selling for much less than they should have been) as investors retreated from the volatile stock markets in search of stability in US bonds. ...
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