"Treasury bonds are the foundation of the U.S. and global financial systems. Their yields serve as benchmarks for interest rates on mortgages and corporate bonds. Securities dealers in the U.S. hold some $1.9 trillion in Treasuries as collateral on loans to hedge funds, banks and other financial companies. Mutual funds, pension plans and corporations rely on interest payments from Treasuries to meet their obligations to investors, retirees and workers. "The slightest concern about the U.S. government’s ability or willingness to pay could prompt investors to demand a higher return on the bonds and dealers to toughen the terms on which they accept Treasuries as collateral. That would abruptly raise the cost of credit for everyone -- or else freeze financial markets altogether. Economists have estimated that a few missed Treasury-bond payments in 1979, the result of a brief technical glitch, pushed up interest rates by 0.6 percentage point and boosted the U.S. government’s borrowing costs by $12 billion a year. "
Posted on: Tue, 08 Oct 2013 08:50:29 +0000