Has the endgame for bond investors begun?
Since at least 2009, pundits and professional investors have been predicting that the three-decade-long bull market in bonds was about to end. So far they have consistently been proven wrong.
Earlier this week, however, the U.S. hit its debt limit—the total amount that Congress has authorized the Treasury Department to borrow (around $14.3 trillion). Treasury Secretary Timothy Geithner warned that the U.S. would default on its debt in early August if Congress doesn't pass legislation permitting the government to borrow more money to meet its existing obligations. Since 1978, Congress has raised the debt limit 51 times, often after wrangling with the White House over spending cuts.
On the surface, the market for Treasury securities seems to be shrugging off any fears, focusing instead on the Federal Reserve's policy of keeping interest rates low and on the sluggish pace of economic recovery, which tends to be good for bonds. The Fed's massive purchases of Treasury securities and other government and mortgage debt have flooded banks and brokerage firms with cash.
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