Treasuries Market Reflects America's Fiscal Health

Investors are buying a larger share of U.S. Treasuries sold at government auctions than ever before.

America’s improving fiscal health is starting to be reflected in the market for Treasuries.

As the Federal Reserve scales back its unprecedented bond buying this year, the ability of the world’s largest debtor nation to attract investors underscores the strides the U.S. has made to strengthen its creditworthiness after the worst financial crisis since the Great Depression. With the budget deficit at a seven-year low and household wealth rising to a record, investors from mutual funds to foreign central banks are buying a greater share of Treasuries at government auctions than ever before, as bond dealers that are obligated to bid by a smaller share.

Bond raters have taken notice. Fitch Ratings increased its outlook on the U.S.’s AAA grade on March 21 to stable from negative, joining Moody’s Investors Service and even Standard & Poor’s in assigning stable outlooks on the U.S. S&P dropped its rating to AA+ in August 2011, citing political wrangling over the debt limit and the lack of a plan to reduce deficits.

With the U.S. economy showing signs that the worst recession in seven decades is behind it, Richard Schlanger, a money manager at Pioneer Investments, which manages $20 billion in fixed-income securities, says there is more value in higher-yielding assets such as stocks than Treasuries.

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