Fed Needs Cash, Sells Debtby Tim Manni
Bailouts have left the Fed seeking for more cash. The Treasury Department will begin a program today that will sell more debt in order to expand the Fed’s balance sheet. They will begin with a $40 billion auction of 35-day bills, and then will continue with a series of treasury bill auctions. Offers of billion of dollars in backing have left the government a little short on cash. Despite being a natural course of action, this could become a cause for concern of interest rates.
As new treasuries begin to flood the market, we wonder what happens if buyers don’t begin to line up. It all comes back to supply and demand; in order to attract investors, yields will have to increase. Unfortunately, mortgage rates are based on those yields, and therefore are likely to rise.