The intensifying debate over when the Federal Reserve raises interest rates is little more than a sideshow when it comes to the ability of the U.S. to borrow.
For all the concern fixed-income assets will tumble once the central bank boosts rates, the Treasury Department still managed to get investors to submit $3.4 trillion of bids for the $1.12 trillion of notes and bonds sold this year, according to data compiled by Bloomberg. That represents a bid-to-cover ratio of 3.06, the second-highest on record and up from 2.88 in all of last year.
Banco Espirito revealed its exposure to related companies on July 11, calming markets and indicating to some investors that the turmoil wouldn’t prevent the Fed from continuing on its path of reducing unprecedented monetary stimulus.
“The Fed is going to raise rates in the first half of next year, given the continuing economic strength and the creep higher in inflation,” Jennifer Vail, head of fixed-income research at Minneapolis-based U.S. Bank Wealth Management, which oversees $112 billion, said in a July 10 telephone interview. “We still believe rates are headed higher.”