U.S. Treasuries: Faith and Credit

U.S. Treasuries: Faith and Credit

The U.S. begins to borrow in earnest; Draghi sets the markets straight; China steps in for a borrower.

"2008… has taught us that allowing capital to blindly pursue profit can only create a crisis."
China’s President Xi Jinping, at the United Nations General Assembly

U.S. Treasuries: Faith and credit This past week saw the Treasury Department borrow $258 billion through the issuance of T-bills, along with 2-, 5- and 7-year Treasury notes.1 The total amount borrowed was somewhat larger than in recent auctions, especially for the 2- and 7-year notes; the assumed reason is the need to have cash on hand for government operations as the new tax regime takes effect, and to prepare for the shortfall generated by the most recent budget’s spending levels. For the $43 billion of 2-years auctioned on Tuesday Feb 20 and Wednesday Feb 21, the auction saw rates rise by about six basis points to about 2.266%, before falling back to 2.229% mid-day2 Friday -- in response to increased supply, among other factors.

Though the appetite for U.S. debt appeared to soften slightly at the margin, demand remains healthy. S In remarks made while travelling to the U.S. Mint in Philadelphia, Treasury Secretary Mnuchin downplayed the prospect of a debt-driven rise in inflation: "You can have wage inflation and not necessarily have inflation concerns in general."

China: High-profile change On Friday Feb 26, the China Insurance Regulatory Commission published a letter to the management of Anbang Insurance, stating that the duties of the board and management will now be overseen by a working group of 31 regulators from several government agencies. The move was seen by many as part of a more general effort to regulate the issuance of debt to finance widely-varied activities by conglomerates, as well as other issuers. Among the company’s assets is New York’s Waldorf Astoria Hotel.

European Central Bank: I meant to say… The minutes of the January policy meeting, released on Thursday, were unequivocal: even hinting about future tightening was to be avoided. Fear of market disruption was clearly a motivating factor: “Monetary policy would continue to develop... with a view to avoiding abrupt or disorderly adjustments at a later stage.”

The clarity was welcome; the statement released by the ECB in January had stated that policy guidance could be reviewed “early” in 2018, suggesting to some that a change was in the offing and roiling markets.


1 T-bills have maturities up to one year; Treasury notes, from 1 to 10 years; Treasury bonds, 10 years and longer.

2 All data Source: Bloomberg; most recent data as of Friday, February 23, 2018, 12:45 ET.



U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

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