The results of today's Treasury auction were a shot across the bow of the government.
And, according to David Zervos, head of fixed income strategy at Jeffries, may be an indication of just how skittish some investors are feeling about the fiscal soundness of the United States, in light of big government spending for health care and other costly programs.
“It’s the health-care realization trade,” Zervos told CNBC, post-auction, from the firm’s trading floor. “We’re coming to grips with the fact that we have a Congress that’s ready to go, and spend.”
Zervos, who worked at the Federal Reserve in Washington, DC last year as a visiting advisor, also characterized the government’s recent initiatives as a “fiscal train wreck” that shows a lack of restraint. He predicted the health-care bill will yield trillions of dollars in debt (marketable).
Investors showed scant interest in the latest round of debt auctions: Depressed demand today in five-year note sales pushed Treasury yields up. The $42 billion sale drew a yield of 2.065 percent, full 10 basis points, or 0.10 percentage points—up from the where the five-year was trading when the results came out at 1 p.m.
Jefferies’ Chief Financial Economist Ward McCarthy agreed with his colleague and told CNBC, “There’s a lot of concern about what’s happening on a fiscal basis. We have enormous budget deficiencies, and Congress and the Administration really have done nothing to address that. In fact, the recent legislation on health care is going to increase our budget deficits by over a trillion dollars.”
In a related discussion, McCarthy also told CNBC the economic rebound is moving forward, but his expectations were muted: He predicted a “fair to middling” recovery, and added that “it’s going to take some time before we generate strong growth.”
