Wednesday, April 21, 2010

Good News For the Bond Market

From Reuters:

Rising tax receipts will likely reduce U.S. government borrowing needs in the rest of this fiscal year and fiscal 2011, Morgan Stanley said on Wednesday.

Less supply may end up hurting bonds because it signals an improving U.S. economy -- which is typically negative for Treasuries, the U.S. investment bank's analysts said in a research note.

They predicted U.S. long-dated Treasury supply would fall by $52 billion for the remainder of fiscal 2010 and by $589 billion in fiscal 2011.

"While we are encouraged by this improvement it's hard to get too excited because it's like drowning in 75 feet of water instead of 100 feet of water," they wrote in the note.