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NEW YORK (Reuters) - U.S. President Barack Obama will forecast later on Thursday a 2009 deficit of $1.75 trillion (1.2 trillion pounds) in budget proposals to be unveiled later in the day, according to administration officials.
The 10-year U.S. Treasury note future fell after a summary of the proposals was released.
TOM SCHRADER, MANAGING DIRECTOR, U.S. EQUITY TRADING, STIFEL NICOLAUS CAPITAL MARKETS, BALTIMORE:
"I think the budget is probably already built into the market, considering how much Obama told us he has to spend. Wall Street and investors will think the budget is too big, but I think it will be pared down by April.
"The deficit is huge, but it's a necessary evil, and I think it's already built into the market.
"There's a fear and a certainty that taxes will have to go up in order for Obama to do everything he wants to do -- including halve the deficit by the end of his first term. But taxes are also already built into the market, and that could be why we've been seeing the levels we've been at in the market."
"These numbers are to be expected -- 12.3 percent of GDP is pretty hefty -- but I think we're assuming that the stimulus is expected to be front-loaded.
"If he's going to halve the deficit by 2013, assuming he does get a second term, its going to start declining by 2010 fiscal year.
"On the negative side, the headline GDP ratio is probably a bit worse than people anticipated and won't do the dollar any favours but also people know it's necessary and if markets assume its going to be a front-loaded move then that will help the dollar in the medium term."
"We've known that there's going to be an incredibly large U.S. deficit coming through. It obviously settles a lot on the financing rescue, so it looks like there's been a small move on that initially.
"As we look over the coming months, the Treasury market will focus less on supply concerns and focus more on macroeconomic details -- i.e., how slow or how much of a fall in general price levels are likely to be in coming months, and what those risks are.
"We don't see deflation episode but we see a risk of it, and until that risk has passed, Treasuries are likely to maintain low yields despite high issuance."
"The budget issue is definitely one for Treasuries because it means greater funding going forward, it means that there is going to be a lot of supply that has to be taken on board by the market. It's obviously reeling from the current amount of supply, which is a heavy load already, so the reaction should continue to be adverse for U.S. Treasuries certainly in the very near term."
"Even a drop in the ocean ... adds to the massive budget deficit of 12 percent. It's another cash call. The market is also braced for new debt supply in the seven-year area of the yield curve."