Something very interesting is going on with Treasuries and the dollar.

[randomness]

There was some worry that, with all the money the Federal government is throwing at banks to keep them afloat a) this mass issuance of debt would flood the markets with Treasury securities, which would force up interest rates because there wouldn't be enough buyers for it and b) that the budget-busting this represents would cause people to flee the dollar for other currencies, driving down its value.

Neither of these things is happening. In fact, quite the opposite.

It's true that there's been a lot of new Federal debt, but such is the scramble for low-risk assets like Treasuries that their prices are now soaring, which drives yields down. At this point, the interest rate on Treasury securities is so low, buying them amounts to a deal where you give money to the Treasury and they promise to give it back, plus a minimal amount of interest. Then again, considering the other possibilities on offer which might not pay you back, that's a pretty good deal right now.

In order to buy Treasury securities, you have to have dollars, so demand for dollars has been strong. And however bad things look here, chaos overseas means that things don't look any better elsewhere. All of this has meant that the dollar is gaining lots of ground on the euro. The euro dropped below $1.35 during the day today, down from around $1.60 in mid-July.

How long will this go on? Who knows? It wasn't really expected to go this way to start with.

Comments

[dianec42.livejournal.com]

Is it possible to look at it another way, namely that we're finally dragging them down with us?

Interesting times...

[r-ness.livejournal.com]

Oh, sure. It's all relative. Although it might be more accurate to say that they fell into the hole with us a while ago, but no one noticed until recently.

[holmes-iv.livejournal.com]

Wiley Coyote the central banker, much?