US treasury market – The consequences: higher costs for the US government at the very moment it is poised to borrow more
More bonds being traded than exist defies the natural laws of supply and demand. While greater demand for treasuries should be allowing the US government to lower borrowing costs, the inflated supply through duplicated bonds could lead to higher borrowing costs.
“These undelivered treasuries represent unfulfilled demand – demand by investors willing to lend money to the US government,” says Trimbath. “That money has been intercepted by the selling broker-dealers. By selling bonds that they cannot or will not deliver to the buyer, the dealers have been allowed to artificially inflate supply, thereby forcing prices down. These artificially low prices are forcing the US government to pay a higher rate of interest than it should in order to finance the national debt. It shouldn’t take a PhD-trained economist to tell you that prices are set where supply equals demand. If a dealer can sell an infinite supply of bonds then the price is, technically speaking, baloney. And the resulting field of play cannot be called a market.
“If regulators and the central clearing corporation will only enforce delivery of treasury bonds for trade settlement at something approaching the promised, stated, contracted and agreed upon T+1, there will be an immediate surge in the price of treasury securities. As the prices of bonds rise, the yield falls. This yield then translates into the interest rate that the US government will have to pay in order to borrow the money it needs to fund the budget deficit [and to refinance the existing national debt].”