Treasuries

I just received the comment: "Are treasuries getting slammed because of the tax cuts and the implied/intended increase in economic growth? or is it more than that?"

My take is that treasuries are getting hurt not because the tax cuts will lead to an increase in economic growth, remember these are extensions not cuts, but because the extensions lock in the deficit, and imply an increase in treasury bond issuances.

Also I find it very telling that the world over is referring to these extensions as cuts, this is propaganda of the first order.

Tax Cuts May Fuel Economy, Limit Need for More Fed???

Bloomberg's lead article today was Tax Cuts May Fuel Economy, Limit Need for More Fed, by Ian Katz and Rich Miller. This article, as the title hints, asserts that the tax cuts (which are in fact extensions) will somehow allow for LESS future purchases by the Fed . Below is an excerpt:

"The proposal removes 'what would have been a potential headwind' for the economy and takes 'some of the pressure off the Fed,' said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Massachusetts. The tax agreement means the Fed 'may not need to do more' than the $600 billion in asset purchases planned through June to boost the economy, Behravesh said."

I find this article to be almost laughable...

In what universe does an increasing deficit require LESS Fed purchases?? These tax extensions will quite obviously come hand in hand with larger future bond issuances, of which the Fed will be forced to pick up a greater share. There is simply no other way.

Note, I am actually in favor of these tax extensions given the fragile nature of the economy, but lets be realistic this will only cause an INCREASE in fed purchases.