Financial market

Essay by S00701090University, Bachelor'sB, November 2014

download word file, 11 pages 0.0

Surname � PAGE \* MERGEFORMAT �7�

hName of Student: Marc- Edouard Kollo

Name of Professor: M. Boukrani

Course Details: Fianancial market

Date of Submission: 28th November 2014

Financial markets/ Bond prices and Treasury financing

The issuance of new (government) bonds to finance the U deficit.

Treasury securities have increasingly attracted strong global demand, enabling the US government to finance large deficits with ease even as critics view the issuance of new Treasury bonds negatively (Congressional budget office n.p). The US Treasury has increasingly issue new bonds to aid in financing the bailouts from the financial crisis of 2008 as well as the rising budget deficits resulting from increased government spending. The increased spending was meant to stimulate the economy at a time when the tax revenues were undergoing slow recovery from the recession. The government's cut in public spending has seen these budget deficits rapidly decline as tax revenues from the rising economy rise.

The federal budget deficit is expected to narrow down to approximately $514 in the 2014 fiscal year as compared to $1,4trillion in 2009, and the Treasury may be inclined to issue a significant amount of bonds to finance the operations of the government (Congressional budget office n.p). If the Fed fails to taper back the rate of bond buying as fast as the Treasury issues new bonds, the Fed will be inclined to purchase an increased number of Treasury bond sales even if it tapers back on bond buying.

The degree to which low bond yields that have higher bond prices are created from the Fed's bond buying will not likely have an impact on the gradual taper plans of the Fed (Congressional budget office n.p). Bonds rally with weak economies and the slowing economic growth in the US is no exception. The spike in...