Interest Rate Roundup

Wednesday, July 29, 2009

Five-year auction bombs

Yesterday's record 2-year Treasury Note auction went off fairly well. Today's 5-year auction? Not so much. The Treasury tried to sell a record $39 billion of notes. Pre-auction talk was for the notes to sell at a yield of 2.635%. Instead, they went off at 2.689%, more than 5 basis points higher. The bid-to-cover ratio fell to 1.92 from 2.58 at the last auction. In fact, that was the worst since September 2008. Indirect bidders took down just 36.7% of the notes sold, down from 62.8% and the lowest since April. Bond futures dropped sharply on the news from pre-auction trade around 116 24/32 to as low as 115 16/32.


  • This may be the beginning of the greenback's demise, as China and other foreign investors realize how bad the inflation problem is going to be down the road.

    I think what's happening now is China is getting more and more confident that it can boost domestic consumer demand relatively fast, to a point where it won't have to continue buying up American debt in order to ensure that Americans have the money they need to buy up Chinese goods. The more confident the Chinese government feels that Chinese consumers will spend more like Americans in the near future, the less they'll buy into American Treasuries. Yep.

    By Anonymous Prime Rate, at July 30, 2009 at 10:32 PM  

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