U.S. federal debt has been stuck at $16,699,396,000,000.00 for 68 straight days, according to the Daily Treasury Statement on July 24. That amount is exactly $25 million less than the legal borrowing limit of $16,699,421,000,000.00 set on May 17, 2013. But that’s only part of the story.
A closer look at the numbers actually shows the U.S. Treasury has already blown past the federal legal borrowing limit! And the mainstream media, as usual, is out to lunch. The table below shows how “Total Public Debt Outstanding” is already $38.82 billion above the statuary debt ceiling and now at $16,738,106,000,000.00.
The yield on 10-year U.S. Treasuries (^TNX) has surged 51% over the past three months and 84.07% over the past year alone. That move has taken the 10-year yield from 1.40% to 2.61%. And bond investors – especially owners of long-term debt – are beginning to see something they haven’t seen in a while; hefty losses.
Joining these bond losers is the all-wise, all-knowing Federal Reserve, who, courtesy of its massive Treasury holdings (NYSEARCA:TLT), suffers paper losses of approximately $3 billion for every 0.01% rise in interest rates. Maybe the omnipotent Fed isn’t so omnipotent after all.
Meanwhile, leveraged short Treasury ETFs like the ProShares UltraShort US Treasury 20+ Bond ETF (NYSEARCA:TBT) and the Direxion Shares US Treasury 20+ 3x Bear Shares (NYSEARCA:TMV) have jumped between 12% to 16% over the past few months. Not bad when considering the total U.S. bond market (NYSEARCA:AGG) has lost around 3% while long-term U.S. Treasuries have fallen an even harder 10% year-to-date.
As the next debt ceiling debate takes center stage, we can’t help but wonder why bother? If Detroit D.C. has already subversively exceed its legally mandated borrowing limit what’s the point?
The ETF Profit Strategy Newsletter uses a combination of technical analysis, market sentiment, and common sense to be on the right side of the market. Since the beginning of the year, 78% of our ETF picks have turned a profit and 525% was our biggest gainer. (through 6/30/13)
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P.S. Our just released August 2013 newsletter covers the rising yield curve and its meaning, our mega investment theme report, and our popular global equity map.
Ron DeLegge, Editor