Ever since Standard & Poor’s stripped the U.S. of its AAA credit rating almost two years ago, the unemployment rate has fallen, household wealth has reached a record and the budget deficit is shrinking. More downgrades may be coming, anyway.
Treasury 10-year note yields will increase as much as 72 basis points from the lowest level since April 2009 by year-end as the U.S. economy avoids a double-dip recession, according to Bank of America Corp.
A newly elected Democratic president pushes a controversial tax increase through Congress without a single Republican vote. A veteran Federal Reserve chairman holds short-term interest rates at record lows. And the economy struggles to recover from a financial crisis.
The biggest Treasury rally in five months is underlining market concern that President Barack Obama and House Republicans will fail to avert $607 billion in mandated spending cuts and tax increases starting Jan. 1.
China, the largest-foreign lender to the U.S., reduced its holdings of Treasuries in August by the most in at least a decade as the stripping of America’s AAA credit rating by Standard & Poor’s sent yields to record lows.