Yuma International - US Treasuries Are Threat To Recovery

Online, July 24, 2013 (Newswire.com) - As the yield on the benchmark US 10yr Treasury note hit 2.5% for the first time since 2011, Yuma International says that it represents a "very clear and very present danger" to the US economic recovery.

U.S. government bonds have been hurt alongside most assets since Fed Chairman Ben Bernanke said on Wednesday that the economy is on track for further improvement and that the U.S. central bank is likely to reduce purchases as a result.

"We see the continuation of the trend. People are clearing all fixed income paper as quickly as they can," Jason Rogan, said managing director at Guggenheim Capital Markets.

An "Yuma International" credit analyst remarked, "Look at it this way - the Fed has been buying trillions of dollars' worth of government debt in an effort to suppress long-term interest rates. The end of QE would see a major buyer - the Fed - exit the market and investors looking to re-price the risk of lending money to the US government. Yields and, by extension, interest rates will rise exerting negative pressure on the economic recovery."

Yuma International maintains its view that an exit from quantitative easing will be a far more difficult undertaking for the Federal Reserve than investors have been led to believe.

"This is an extremely delicate balancing act for the Fed. If Treasury prices fall and their yields rise too quickly, it could trigger a huge financial crisis that would almost certainly plunge the US and the rest of the world back into recession," the analyst concluded.

Yuma International says it will continue to advise clients to avoid bonds which, it reiterates, are "extremely overpriced".