By Sam Foster
All I heard throughout the media yesterday was how a shutdown was going to kill our fragile economy. Well, this is for anyone who believes the story in the media was true...
Bloomberg reports that a) investors were not worried b) Investors were positive about budget cuts:
While the political drama played out in Washington, with officials warning of consequences from a shutdown, financial markets showed little concern about the fiscal health of the U.S.
Bond yields are lower now than when the government was running a budget surplus a decade ago even as Treasury Department data show that the amount of marketable debt outstanding has risen to $9.13 trillion from $4.34 trillion in mid-2007.
The benchmark 10-year Treasury note yield was at 3.58 percent yesterday, below the average of 7 percent since 1980, reflecting expectations that a deal would be reached, said John Lonski, chief economist at Moody’s Capital Markets Group.
Similarly, derivatives tied to U.S. government debt show investor perceptions of America’s creditworthiness are improving. Credit-default swaps on Treasuries stood 41.12 basis points as of late yesterday in New York, according to data provider CMA Datavision. The swaps are down from this year’s high of 51.5 basis points on Jan. 27 and last year’s high of 59.7 in February. The price levels are the seventh-lowest of 51 sovereign debt markets tracked by Bloomberg and CMA.
Low borrowing costs mean the U.S. is spending less to service its debt as a percentage of gross domestic product. Interest expense fell to 2.7 percent of GDP in fiscal 2010 from 3.8 percent in 2001, the last time the U.S. had a budget surplus, according to data compiled by Bloomberg.
Just remember; the same people who think budget cuts will hurt the economy thought Obama's stimulus bill would save it!