Monday, March 23, 2009

Should USA still be AAA?

By: Li Bin Chen

NEW YORK ( -- When the Federal Reserve announced last week it was buying $300 billion in long-term Treasury notes, the move was viewed as one of the safer bets the central bank has made recently.

After all, the Fed has either bought or announced plans to spend trillions of dollars on troubled mortgages and other types of questionable consumer debt in the past year. At the same time, the Fed has been loaning money to banks and companies that couldn't get funding elsewhere.
So the purchase of AAA-rated Treasurys, the highest credit rating that a bond can have, is probably the least risky thing the Fed can do these days.

Investors agreed: The prices of long-term Treasuries rose after the Fed's announcement, pushing their yields lower. (Bond prices and yields move in opposite directions.) Rates didn't even budge much Friday after the Congressional Budget Office raised its federal budget deficit forecast for this fiscal year.

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