A reminder that I keep tracking and reporting these US debt auctions because they affect everything in our economy, not just interest rates, but the value of the dollar against other currencies, which affects imports and exports, investment strategies for companies and individuals and how much money the federal government has for priorities other than paying interest on the debt. Increasingly commentators are noting that the Federal Reserve may have lost control of the interest rate on federal debt due to buyers concerns about inflation and credit risk. The real problem is that the Fed keeps facilitating deficit spending by pumping money into the economy. And the more money there is floating around the more likely you are to have inflation.
In any event, yesterday there was a $39 billion ten-year debt auction that again was mediocre at best. The interest rate paid was above the pre-set rate and above 4%, 4.067% to be exact, again. Last month the rate was 3.65%. Buyer interest was weak, although foreign buyers purchased more than their usual proportion. Foreign central banks may buy more US debt for a variety of reasons, including the good interest rate, but also related to relative currency values and facilitation of trade. What is becoming clear with recent auctions is that the market increasingly doesn’t care what the Federal Reserve tries to do with interest rates.
in the past year , opposite of normal, The Fed has REFUSED to buy new Treasury issuances. The USG being on its own has caused rate to rise on the long end as FRB has not supported auctions AND the auctions have been prolific. This is inflationary as Treasury issuances , especially when excessive, unlock investment money and it flows to be spent into the economy by the federal govt , which ends up with more money sloshing moving through the economy.