“On a net basis, foreigners sold a record $22 billion of long-term Treasury debt in November. A repeat performance would fuel market nightmares about _______ Treasury rates and a _______ dollar.” The blanks are best filled with
A. falling; rising
B. falling; falling
C. rising; rising
D. rising; falling
To determine the correct answer, we need to think about the relationship between foreign selling of long-term Treasury debt, Treasury rates, and the value of the dollar. When foreigners sell Treasury debt, it means they are not investing in U.S. government bonds, which typically results in a decrease in demand for these bonds.
A decrease in demand for Treasury bonds usually leads to higher Treasury rates (interest rates), as the government needs to offer higher rates to attract buyers. So, if foreigners are selling a record amount of long-term Treasury debt, it suggests a potential increase in Treasury rates.
Now, looking at the options given:
A. falling; rising: If Treasury rates are rising (due to foreign selling), this would likely result in falling bond prices. Falling bond prices usually lead to rising interest rates. A falling dollar could be a result of higher interest rates, as it becomes less attractive for foreign investors, potentially leading to a weaker dollar.
B. falling; falling: This option does not align with our understanding. As we established earlier, foreign selling of Treasury debt typically leads to higher Treasury rates. So, if rates are rising, it would be unlikely for the dollar to also be falling.
C. rising; rising: This option suggests that both Treasury rates and the dollar would be rising. While foreign selling of Treasury debt might lead to rising Treasury rates, it would not necessarily cause the dollar to rise. The dollar's value could be influenced by various factors, such as economic conditions, trade balances, and investor sentiment.
D. rising; falling: This option aligns with our understanding. If foreigners are selling a record amount of long-term Treasury debt, it suggests an increase in Treasury rates. Higher rates might attract foreign investors seeking better returns. Their demand for dollars to invest in Treasury bonds could potentially strengthen the dollar, leading to a falling dollar.
Therefore, the correct answer would be D. rising; falling.