Treasuries fell as Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank should raise interest rates ``sooner rather than later'' and traders prepared for the sale of $58 billion in government debt this week.
Treasury Secretary Henry Paulson's plan to revive U.S. mortgage financing depends on investors buying the same kind of bonds they're shunning in Europe. Paulson wants to create a version of Europe's market for covered bonds in the U.S. just as sales of the debt have fallen to a six-month low and prices have dropped 2.5 percent this year. While the securities are backed by loans and bank assets to get AAA ratings, most are valued, on average, as if they were three levels lower. As I have mentioned before the insurers for these bonds are ll going under. This could be our next crisis.
Developing a U.S. market for the securities is the latest of Paulson's initiatives to revive lending among banks crippled by $452 billion of credit losses and writedowns. His plan for a ``SuperSIV'' to bail out the $400 billion market for structured investment vehicles(What planet is our government from?) failed last year after Wall Street firms rescued the credit funds independently. Both Democratic and Republican senators are looking for changes in the Treasury secretary's proposal this month to shore up home lending by allowing the government to buy stakes in Fannie Mae and Freddie Mac.
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