If the faith on the U.S. government is on the verge of a cliff, why we do not see it in the U.S. Treasury yield curve?

The media has kept the "debt ceiling battle" on the spotlight for a while.  The deadline is now this coming August 2.  The main point is that a default by the U.S. government is a real or credible threat, which may have long lasting consequences for the U.S. economy.  If such threat and its long lasting consequences are credible, then financial markets should have already reacted in advanced.  In particular, the holders of Treasury securities should have already commanded higher yield rates as a result of the increase in the default risk premium.  Certainly, during July –specifically, from July 21 to July 28– there have been increases in the yield rate for Treasury securities with maturities of 1, 3, and 6 months.  On July 28, the 1 year Treasury security was 1 basis point above its level on July 1.  In contrast, during July the yield rates for the rest of Treasury securities –with maturities of 2, 3, 5, 7, 10, 20, and 30 years– have declined.  Furthermore, Treasury yield rates across all maturities are below their level at the beginning of 2011 and their level from a year ago, except for the 20 and 30 years securities when compared to their level on July 28, 2010.  –Over the past year, the federal funds rate have remained between 0 and 25 basis points; the Fed kept its bond-buying program or QE2 until a month ago; the U.S. economy has experienced slow economic activity; and inflation has not been a real concern.–  In sum, if the faith on the U.S. government is on the verge of a cliff, why we do not see it in the U.S. Treasury yield curve?  At most, market concerns are limited to very short term securities.  Holders of U.S. Treasury securities do not believe that the “debt ceiling battle” will severely and permanently harm the faith on the U.S. government or, even if they do, U.S. sovereign debt still beats any alternative; i.e., where would current holders of U.S. Treasury securities put their money anyway?  

			Daily Treasury Yield Curve Rates
Date	1 mo	3 mo	6 mo	1 yr	2 yr	3 yr	5 yr	7 yr	10 yr	20 yr	30 yr
Jul 28, 2011	0.10	0.07	0.13	0.21	0.42	0.68	1.52	2.26	2.98	3.93	4.26
Jul 1, 2011	0.01	0.02	0.10	0.20	0.50	0.85	1.80	2.54	3.22	4.12	4.40
Jan 3, 2011	0.11	0.15	0.19	0.29	0.61	1.03	2.02	2.74	3.36	4.18	4.39
Jul 28, 2010	0.15	0.15	0.20	0.30	0.61	0.95	1.75	2.43	3.03	3.86	4.07
Source:  Data from U.S. Department of the Treasury

NBER Announces the End of the Recession that Began in December 2007

On September 20, 2010, the National Bureau of Economic Research announced that the recession that started in December 2007 ended in June 2009.  However, the end of a recession does not mean that the economy is back to full-employment, it just means that it reached bottom (i.e., through). The fact that unemployment is still high means that the recovery phase has been very slow (leave it at that for now). Please, check the source of information (http://www.nber.org/cycles/sept2010.html): "In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month."

Is the Recession Over in the U.S.?

Fed maintains rate target within 0 - 25 basis points range

FRB: Press Release--FOMC statement --April 28, 2010

Have China's Exports to the U.S. Displaced Mexico's?

China joined the WTO on December 11, 2001.

XV Annual Conference of the Center for the Study of Western Hemispheric Trade @ Laredo, TX

U.S. Consumer Price Index Increased by 0.27% in October

The seasonally adjusted U.S. CPI-U increased by 0.27% in October, but it dropped by 0.23% compared to its level from October of last year. This index reached a maximum at 218.675 in September 2008 and a minimum at 211.577 in December 2008. It has been growing since last May.

U.S. Producer Price Index Grew 0.3% in October

U.S. seasonally adjusted producer prices―finished goods (PPI) increased 0.3% in October; the average of the PPI in October over the period 2002-2007 is 0.57%.  From October 2008 to October 2009, U.S. seasonally adjusted PPI dropped by 1.9%.  PPI reached a maximum at 183.4 in July 2008 and a minimum at 169.5 in March 2009; it has been growing since then. It reached 174.2 (preliminary figure) in October 2009.

Budget Problems?

In recent weeks, there has been a heated debate over the 2010 budget in Mexico.  Every analyst points to the non-sense of the Mexican budget, especially in terms of the mismatch of revenues against expenditure.  Regarding this issue, here is a quote:  
“The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services. That fundamental disconnect will have to be addressed in some way if the budget is to be placed on a sustainable course.”
These statements are not from a Mexican analyst nor it refers to Mexico; they are from Douglas Elmendorf, the director of the Congressional Budget Office. http://cboblog.cbo.gov/?p=423

"DRUG WARS"

"Drug Wars" is the next topic to be covered in the 2009-2010 IBC Keynote Speaker Series, see attached flyer.

Mexico's Consumer Confidence Index

Mexico's Consumer Confidence Index leveled at 77.0 in October, down from 81.9 in September. It is the lowest level during 2009 and reflects both (i) that more consumers consider that they are worse off today than a year ago, and (ii) that fewer consumers expect that economic conditions will.improve over the following 12 months, as all five partial indicators dropped in October compared to September levels. I expect that the drop in consumer confidence is overstated by resentment due to the manner that both the House and the Senate are handling the 2010 budget.

Is the US economy back in a recovery phase?

According to BEA’s “advance” estimate, the economy grew at an annual rate of 3.5% during 2009 Q3, up from the observed annual growth rate of -0.7% in 2009 Q2. Yet, the unemployment rate grew over the second quarter, from 9.5% in June to 9.8% in September. In addition, BLS just announced that the unemployment rate during October increased to 10.2%.  Would someone call this a "jobless recovery"?

FOMC voted to keep federal funds interest rate within the 0-0.25 target range

Call for Papers: CSWHT 15th Annual Conference (April 14-16, 2010)

Laredo... Wide Open for Business

Blogging Economic Issues / Temas Economicos

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