IMF looking at details for bond issue
Expect to announce details on new bond issue. This would supposedly be a blended rate bond (EUR, JPY, GBP, SWF and USD) that will allow countries to help diversify dollar exposure (in theory). The funds raise are likely to help less developed countries as they suffer through their own credit issues.
The IMF also notes that the USD remains in line with fundamentals but perhaps is slightly overvalued.
The bond issuance, along with the issuance of other bonds like corporate bonds from banks who are looking to pay back TARP money, is having a “crowding out” implications for US bond yields. Yields on US bonds have been rising with the rate on the 30 year bond at the highest level since August 2008. This in turn is raising mortgage rates in the process. Yesterday the weekly Mortgage application data showed that the average rate on 30 year mortgages rose to 5.25% -the highest rate since January. In March the low was 4.61%.
The longer term risks to the dollar remains down as the global investment community seems to be interesting in diversifying risk elsewhere - over time at least. This should pressure US rates. Note, however that higher rates do not neccesarily go higher forever. Higher rates now has the potential to slow growth once again, which makes investment in bonds at the right price/rate a consideration by the investment community. Inflation should not be a concern as long as growth remains slow. This makes bond yields attractive at some point. Last week, the people at Pimco have indicated that 10 year yields at 3.75 to 4.00% was attractive. The current 10 year US bond yield is at 3.65%.
Nevertheless, it is the process of finding of the equilibrium rate which is trial and error and could cause sharp swings in bonds and the dollar.
Speaking of bond issuance US Treasury is to to sell $35B next week. The breakdown is
3-year notes,
$19B 10-year notes and
$11B 30-year bonds
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