Recent comments from the new (announced 1-26-09) Treasury Secretary Timothy Geithner (Former NY Fed President) to China with a key word towards their currency policy “manipulation” of offsetting exchange rates has set fixed income traders on edge sending Treasury rates higher over the last several days. While an aggressive policy towards China’s currency policy might seem good at first as many have long felt China has pegged their currency to the USA, an aggressive posture at this time in our economic environment may lead to much higher US rates which may slow our recovery.
China owns a substantial portion of our (USA) treasuries as a long term exporter of goods.
We continue to watch long term fixed income rates (fear bubble; Q 1 2009 Newsletter) with a cautious eye as many investors may have piled into long term fixed income instruments creating a fear bubble, but a bubble still. As we all know bubbles end abruptly and many times without warning. Caution is again advised ! JK