Tuesday there was an extremely year 2-year Treasury bond auction. It went very well, lower than expected interest rate, strong demand. Yesterday there was a 5-year debt auction, and it was the opposite. The Treasury was trying to sell $70 billion in these notes, which is a huge, huge amount for one auction. The interest rate was higher than projected and demand weaker. Previously, the pattern we have seen is generally acceptance of 2 and 5 year debt, but problems with longer-term auctions, particularly 30 year debt. Now it appears that the buyer universe is anxious even about the five year notes. And who can blame them, whether it is Trump or Harris, there is no credible plan to eliminate the deficit, much less reduce the debt pile. What investors have been happy to do is take the high interest paid on shorter term debt–rates that are much higher than they have been in a very long time–and feel that they can roll that debt over pretty soon, probably at a similar rate. What they are concerned about with longer-term notes and bonds, even at the five-year level, is that debt issuance will be so high and the auctions so large, that there will be trouble absorbing it. And they have to be wondering what the end game is. I can tell you that end result–constant high inflation to devalue the debt principal and destruction of the US economy with high inflation and interest rates. (ZH Post)
The Federal Reserve no longer controls interest rates, the bond market buyers do, and they don’t like what they are seeing.
