Obama imposes $500,000 cap on executive pay

Treasury bond market taunts Fed as yields jump

Rising yields on Treasury bonds are testing the Federal Reserve's pledge that it stands ready to buy those securities to keep interest rates in general down.

Bond traders now may be playing a game of chicken with the central bank, pushing up yields to see how much the Fed will brook.

The yield on the 10-year T-note -- a benchmark for mortgage rates -- reached 2.94% today, up from 2.84% on Tuesday and the highest since Nov. 27.

At the end of last year the 10-year T-note yield fell as low as 2.06%.

Although some rebound had been expected, "The question is, where is the Fed willing to draw a line in the sand?" said Tom Tucci, head of the Treasury trading desk at RBC Capital Markets in New York.

With its benchmark short-term interest rate already at rock bottom, the Fed can’t make any more use of that tool to influence market rates. So the central bank in mid-December signaled that it might buy Treasuries for its own portfolio as a way to pull longer-term rates down or at least keep them from rising.

The Fed, led by Chairman Ben S. Bernanke, went a step further after its meeting last week, saying it was "prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets."

Here’s the problem the Fed faces: Traders and investors have some legitimate reasons to push Treasury yields up from their recent record lows. For one, Wall Street knows it is facing a massive supply of new government debt to fund the financial-system bailout and economic stimulus plans.

The Treasury today said it would borrow $67 billion next week alone via sales of three-year, 10-year and 30-year bonds. To attract enough buyers, the government may just have to pay more.

Also, part of the reason why Treasury yields have snapped back is that some investors have been selling Treasuries to buy higher-yielding securities this year -- including corporate and municipal bonds. That’s a good sign for the financial system, because it suggests that investors are becoming less fearful about taking risk.

"Corporate bond issuance was very robust in January, a sign of better credit market conditions," noted Tony Crescenzi, bond strategist at Miller, Tabak & Co. in New York.

Still, rising yields on long-term Treasury bonds aren’t helping the mortgage market. Home loan rates have ticked up since mid-January.

But that also may be exposing the limits of the Fed’s power to influence long-term interest rates: Mortgage rates are higher even though the Fed has been buying mortgage-backed securities for its own portfolio since early January.

That raises the question of whether the Fed would just be wasting financial ammo if it tries to mess with the market by buying Treasuries as well.

-- Tom Petruno

Photo: Fed Chairman Ben S. Bernanke. Credit: Chris Ratcliffe / Bloomberg News

TARP: What's in a Name?

ABC News' Charles Herman reports:  Newly appointed Treasury Secretary Timothy Geithner continues to meet with other administration officials and members of Congress to decide how to use the second half of the $700 billion financial rescue package known as the TARP in order to fix the banks and get credit flowing again.

But there’s one issue about the TARP, something I have been reporting on for months, that has been driving me nuts and I hold out hope to have a definitive answer when Geithner announces the new direction for the program.

What exactly is the name of the TARP?  Is it the Troubled Asset Relief Program,  as it is most widely called? 

Or is it the Troubled Assets Relief Program, where “assets” is plural?

Here’s the actual bill.  And I quote, “TITLE Iâ€"TROUBLED ASSETS RELIEF  PROGRAM.” 

Plural.

But then just a few lines down, the bill says, “The Secretary is authorized to establish the Troubled Asset Relief Program (or 'TARP') to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution.” 

Singular.

Before the previous administration left office, the Treasury Department told me, “At some point, we decided it was supposed to be assets plural, so that’s the best to use.

But look here and here and here.  Singular.

In the haste to write the bill in October, did Congress forget to get an editor to review the text?

More important, why should we care?  Because this little issue actually speaks to the larger problem with the TARP.  The bill was written so fast and approved so quickly that now, four months later, we are faced with a situation in which the new administration, Democrats and Republicans in Congress and the U.S. taxpayer are deeply dissatisfied with the results of the TARP.  The Government Accountability Office even questions how effective the TARP has been in stabilizing the financial markets (GAO says singular).

If, on a small scale, the very name of the program isn’t clear, is it surprising that so many now doubt how effective the program is in the broader sense?  Next week, the treasury secretary is expected to announce how the TARP will operate going forward.  With so many tough decisions to make, perhaps the easiest is deciding what the acronym stands for.

I have asked the new press office at the Treasury Department for its  thoughts on this matter.  What’s yours?

Nikkei opens lower

TOKYO - JANESE share prices opened lower on Thursday, with the benchmark Nikkei-225 index falling 53.41 points, or 0.66 per cent, to 7,985.53 in the first minute of trading.
Obama imposes $500,000 cap on executive pay
Limit applies to most distressed financial firms taking bailout money Limit applies to most distressed financial firms taking bailout money
Advani wants strategists to lead from front
BJP’s campaign for the forthcoming Lok Sabha polls is likely to be completely decentralised, with clusters of states being placed under the stewardship of a senior leader.