Less inflation, which boosts the purchasing power of fixed-rate payments, may help attract buyers to Treasuries as the economy strengthens and the Federal Reserve pares its own bond buying. While yields have fallen this year, the compensation 10-year notes provide after inflation is close to the highest in five years. Excluding food and energy, health care accounted for about a third of the slowdown in consumer prices, which rose 1.1 percent in the past year from 2 percent in the prior 12 months.These cost controls in the law are largely through cuts in Medicare payouts to poor-performing hospitals and through the incentives it created to curb readmission rates, as well as and changed payment programs to reduce unnecessarily expensive procedures. Just think what savings could be achieved if Medicare could negotiate prescription drug prices. Or how much could be saved in a public option where the government was setting reimbursement rates for all care.
“This is good news” for bonds, Kathy Jones, a New York-based fixed-income strategist at Charles Schwab & Co., which has $2.25 trillion in client assets, said in a telephone interview on April 4. By holding costs down, “it may be a benefit to inflation, longer-term.”
Jones, who has been advising clients on the bond-market implications of the health-care law, is recommending that investors buy 10-year Treasuries because low inflation will keep the Fed from lifting interest rates. […]
Inflation has remained below the Fed’s 2 percent target for 22 straight months and “a couple” of policy makers said at its March meeting that “unusually slow growth” in health-care prices has played a “notable role” in holding back prices, minutes of the gathering released on April 9 show.
The Republican mantra that the law is a total disaster that will doom the nation is sounding more and more ridiculous. This news, combined with the latest projections from the Congressional Budget Office on the cost savings ($104 billion over previous projections in the next decade), is going to make a hard sell for Republicans with their traditional allies in the financial sector, not to mention the millions of people who would lose access to health care.