Why Geithner's sleight of hand may just work

Just when government bond investors were growing concerned at fast-deteriorating public finances and huge new supply of bonds to pay for stimulus plans and financial system bailouts, along came a new group of buyers to cap rising yields. Politicians and policymakers know they need to restore confidence to the markets, and central bank quantitative easing, creating money to buy government bonds, certainly looks like a confidence trick. With 10-year US treasury rates rising 80 basis points from the start of the year, the signs of imminent panic were rising, until the Federal Reserve announced last month that it would buy up to $300 billion of US treasuries of between two- and ten-year maturities over the next six months. That is equivalent to 15% of total outstandings and 30% of forecast new issuance in that period. Following this announcement rates traders report a stronger tone in the markets, with other buyers...