One of the world’s largest and most respected bond funds announced Wednesday it had reduced its exposure to U.S. government securities to zero in light of rising yields, which are inversely related to a bond’s value.
Given the right’s refusal to accept tax increases and the left’s refusal to reduce spending, this move is frightening, but no surprise. When the Fed stops buying U.S. Treasuries in June, it is questionable whether future U.S. Treasury buyers will still be willing to fund U.S. debt.
It looks like the market has voted on its assessment of the United States government’s financial health (not healthy). As yields continue to rise, financing America’s spending binge will become increasingly expensive. It is time to cut spending (and increase taxes), before our debtors force the country to take much more draconian measures.