Sunday, February 8, 2009

CREDIT MARKET. AN INTERESTING SET OF NEWS
. Saksia Scholtes: "US credit card use dented by job cuts and slow economy", Financial Times
. Michael McKenzie: "Avalanche of Treasury bonds", Financial Times

These two articles provide us with a interesting opportunity to look at various key elements of the credit markets. On the one hand, it looks like private demand for credit is in deep trouble:

US consumers dramatically cut back their credit card spending in the fourth quarter , according to results from credit card lenders and payment processors ... MasterCard, the second-largest payment processor after Visa, said yesterday that spending volumes from US holders of their branded credit cards fell by 11.4 per cent in the fourth quarter of 2008 year on year.

Talk about a reduction in credit demand! On the other hand, however, the same newspaper tells interesting stories about an upcoming "avalanche of Treasury bonds". Thus, the ever-larger budget gap puts upward pressure on long-term rates:

It would be unprecedented to see every Treasury security sold each month [a reference to three-year notes and 30-year bonds, issues that had been suspended for a number of years]. We expect $1,900bn in net borrowing for this financial year and this is the only way the Treasury can get there.

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