Treasury 5-year yield at record low after retail sales fall

Germany, Bernanke

The Federal Constitutional Court in Karlsruhe will issue a ruling on bids to halt Germany’s participation in the European Stability Mechanism and the fiscal treaty on Sept. 12, it said today in an e-mailed statement. That’s more than two months after it held a hearing on the measures on July 10.

The delay may compound efforts to resolve the 2 1/2-year- old crisis as European leaders disagree over the details of bailout conditions, bank rescues and burden-sharing.

Fed Chairman Ben S. Bernanke is scheduled to testify before the Senate Banking Committee tomorrow, discussing the outlook for the economy and monetary policy. He will speak before the House Financial Services Committee the following day.

“There’s a flight to quality,” said Kevin Yang, head of bond investment in Taipei at Hontai Life Insurance Co., which has $6 billion in assets. “The Fed will maintain a low- interest-rate environment.”

The Fed under Bernanke bought $2.3 trillion of Treasury and mortgage-related debt to stimulate the economy. The central bank decided in June to extend a policy known as Operation Twist, where it sells short-term securities and uses the proceeds to buy longer-term debt, to $667 billion from $400 billion.

Vanguard’s View

The Fed is scheduled to buy as much as $2 billion of Treasuries maturing from August 2022 to February 2031 today as part of the plan, according to the Fed Bank of New York’s website. Bernanke has also pledged to keep the central bank’s target for overnight bank lending at almost zero through at least late 2014.

Vanguard Group Inc., whose $148.2 billion of Treasuries makes it the largest private owner of U.S. debt, says the nation has until 2016 to contain its borrowings before bond investors revolt and drive up interest rates.

“In the absence of a long-term credible plan, we are somewhere around four years away on where the markets are going to say ‘enough is enough,’” said Robert Auwaerter, head of the Valley Forge, Pennsylvania-based Vanguard’s fixed-income group since 2003 and who this year was inducted into the Fixed Income Analysts Society Inc.’s Hall of Fame.

The U.S. has avoided the turbulence rocking Europe, where five nations have sought bailouts as their borrowing costs soared because investors boycotted their bonds. Instead, they have sought U.S. assets as a haven because of the dollar’s status as the world’s primary reserve currency, pushing note yields to record lows even though the amount of public debt outstanding has grown to $15.9 trillion from less than $9 trillion in 2007.

Bloomberg News

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