US treasury market – The problem: the settlement system for the US government bond market has broken down

The US treasury market, the foundation of government bond and corporate bond markets worldwide, is suffering a crisis of confidence at the worst possible moment. Investors in treasuries are the lenders enabling the US government bail-out of the country’s broken financial institutions. That leaves them financing purchases of equity of volatile and highly questionable worth and backing a ragbag of distressed assets.

The US treasury market reaches breaking point

For now, treasury yields are at record lows across the term structure as investors with cash to invest conclude that they can trust no one else with their money. But investors must wonder at what point the expanded supply of government debt and its use will make the borrower inherently less creditworthy.

There is an even more pressing concern for many participants in this increasingly swollen market: the settlement system has broken down.

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