Interest Rate Roundup

Thursday, December 10, 2009

30-year auction bombs; 2/30 spread hits record high

Readers, you should be aware that the 30-year Treasury Bond auction today stunk up the joint. $13 billion in 30s were auctioned off at yield of 4.52%, 4 basis points worse than pre-auction talk.

Despite the recent rise in yields, demand was relatively punk, too — with indirect bidding falling to 40.2% from 44% in the prior month’s auction. The bid-to-cover ratio was up slightly to 2.45 (meaning there were $2.45 in bids for every $1 in bonds being offered). But that’s still low given the recent cheapening of the bond. Rick Santelli on CNBC gives this auction an “F+” I agree.

The key message from the bond market: Investors will buy short-term Treasuries six ways ’til Sunday. But amid record and rising debt issuance, Fed monetization of U.S. debt, and rising inflation fears, buyers just are NOT all that willing to lend Uncle Sam money at these yields for the long term. Indeed, the yield difference between 2-year and 30-year Treasuries blew out on the news to 372 basis points. That is the highest in the history of the Bloomberg data I have, which goes back to December 1980.


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