Finweek English Edition - - Cover - In tIMeS OF tO­tal VIC de KlerK

fi­nan­cial un­cer­tainty, as the world is cur­rently ex­pe­ri­enc­ing, US Trea­sury bonds are con­sid­ered the safest refuge for money. Gold has long since lost that sta­tus. For many peo­ple it seems in­cred­i­ble that US Trea­sury bonds – which are noth­ing but deben­tures (IOUs) is­sued by the United States gov­ern­ment – can be the safest in­vest­ment. Af­ter all, it’s pre­cisely the ex­or­bi­tant spending by both in­di­vid­u­als and that coun­try, plus their ex­tremely high debt lev­els, that brought on the cur­rent credit cri­sis.

To try to save the world from a fi­nan­cial cri­sis, the US Trea­sury is print­ing tril­lions of new bonds and un­load­ing them on to the mar­ket. All traces of fi­nan­cial dis­ci­pline by the US’s fis­cus and cen­tral bank have evap­o­rated. The abun­dant, over­whelm­ing, sup­ply of US dol­lars must – if the rules of sup­ply and de­mand still op­er­ate – make US in­ter­est rates in­crease, the dol­lar weaken and inflation start run­ning away. That’s what’s hap­pen­ing in Zim­babwe.

But don’t be­lieve it. In the midst of the fi­nan­cial cri­sis caused by its own Wall Street, the US dol­lar is cur­rently one of the world’s strong­est cur­ren­cies and the in­ter­est rate on 90-day US Trea­sury bonds has now dropped to al­most zero (see ta­ble).

It makes no sense. Yet the US Trea­sury bond is cur­rently the safest place to store your money. That shows how lit­tle con­fi­dence in­vestors – let’s rather call them own­ers of money, such as oil-rich Arabs – have in other as­sets like gold, met­als, cur­ren­cies, gov­ern­ments and shares.

The ta­ble shows the US Trea­sury – gov­ern­ment – can now bor­row money, even for a fixed pe­riod of five years, for as lit­tle as 2,19%/year. With that cheap money it can buy US bank shares. Think care­fully about that. If the price in­crease of bank shares, along with the div­i­dends they de­clare, is more than 2,25%/year over the next five years, the US Trea­sury will make money out of its cur­rent lifeboat action.

It sounds al­most im­pos­si­ble that should be the case. Nev­er­the­less, some of the sov­er­eign wealth funds of rich Arab coun­tries re­cently in­di­cated they were not yet in favour of mak­ing new in­vest­ments in US bank shares. Trea­sury bonds with an in­ter­est re­turn of 0,06%/year are safer.


Source: Bonds Cen­ter

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