Posted by CNBC News on May 1, 2019 06:20:16President Donald Trump has announced $1.6 trillion in bond purchases and announced plans to sell off $100 billion worth of government debt in an effort to prop up the US economy.
The Wall Street-funded bond buying campaign has been a central element of Mr Trump’s economic stimulus efforts, with Mr Trump declaring a $1tn bond sale in March and a $50bn bond sale on April 1st.
But the plan to sell bonds has not gone as smoothly as expected, as a number of investors have pulled out of the market, and some have taken to posting “no more” notices on the bond markets.
On Monday, investors took to the bond market in the US for the first time since Mr Trump announced the bond buying, and they held their nose and bought.
“I just want to be clear, I am still very happy with the bond-buying strategy,” Tim Jost, an analyst at Morningstar, told CNBC.
In response to a question from CNBC, the US Treasury Department said that it was not in a position to comment on whether bond purchases were being implemented in an orderly manner.
Bond purchases were announced in March at the height of the financial crisis, when the bond bubble was growing and investors were beginning to see their portfolios in decline.
It was announced on March 16 that the US would purchase $1,500 billion of bonds, with $250 billion of that going to the Federal Reserve and $250 million going to banks.
Mr Trump also announced plans for a $250bn bond swap fund that would buy up bonds to help the US finance the government’s debt.
At the time, the Trump administration said that the swap fund would not be used for debt relief or for repaying loans to the public.
With bond buying not going as well as the Treasury Department initially hoped, the Treasury said it would be returning to issuing bonds.
On Wednesday, Mr Trump reiterated the bond swap plan, saying that the bond purchase would create jobs.
He also promised to raise $1trn in the coming year to cover bond-related debt service costs for Americans.
According to a Reuters survey of more than 2,000 bond dealers, bond buying had failed to boost demand, with the majority of dealers saying that bond-market activity had been negative in the first quarter.
Market reaction to bond buying is also mixed.
A recent Reuters/Ipsos survey of bond dealers found that bond buying was largely unprofitable, with only one-quarter of those surveyed believing that bond buyers were profitable.
Some analysts, including J.P. Morgan’s Jim Cramer, believe that bond purchases are a “fool’s errand” and that the Fed will not be able to tap into the $1 trn it created.
Others, including Deutsche Bank’s James Gorman, believe the bond buy was a mistake and said that there is little hope for the US to increase the amount of debt it holds in the near future.
If bond buying fails, the Federal Funds rate may rise again, although it is unlikely to rise as quickly as expected.
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