Treasurys Could Take a Hit if Focus Shifts to Debt Pile
NEW YORK--The U.S.'s enormous debt load has been overshadowed recently by other global financial problems, but, as those start dissipating, bond investors are wondering how long the U.S. government will keep getting a free pass.</br></br>Treasury yields are still at historic lows after last summer's remarkable rally, when investors were bracing for a messy fallout from the European debt crisis. At the time, the U.S. economy also seemed to be sputtering to a halt, raising fears that it might slip back into recession.</br></br>But the landscape has turned distinctly brighter over the past couple of months.</br></br>Greece expects its bailout money to be approved this week, and the euro zone's central banks are reportedly ready to exchange their existing Greek bonds for newer debt, paving the way for private-sector creditors to do the same. There has also been a string of upbeat U.S. economic releases that indicate the recovery is gathering steam.</br></br>Before these two turnarounds, the U.S. Federal Reserve had flooded the economy with cheap money by buying bonds, while the euro-zone crisis fueled a flight-to-safety demand for Treasurys from around the world. Now that the situations are stabilizing, there are worries about what will happen when foreign demand wanes and the Fed starts removing itself as a buyer. The growing fear is that this would drive down Treasury prices and force the U.S. government to pay higher costs to finance its debt, as bond prices and yields move inversely. The Fed is currently buying longer-dated Treasurys under its so-called Operation Twist stimulus plan, using the proceeds from sales of shorter-dated debt. That program is slated to end in the middle of the year.