US Debt Auctions Perk Up

Don’t ask me to really explain the debt markets and especially the US debt markets.  This is big money stuff and big money has its own rationales for what it does and how it does it, and has a tendency to be sure things are rigged, er, I mean, turn out, in a way that makes big money even bigger.  This week has seen two auctions of US debt, both on the shorter end, which has been holding up better in general, that were stellar.  The first is the usual astounding-sized sale of $69 billion in two-year notes.  The interest rate, while higher than the previous two-year note sale, was lower than anticipated and demand was very strong.  The second, today, was an equally astounding $70 billion in five-year notes.  This also had a higher interest rate than for the same instrument in October, but also had fairly strong demand characteristics.  $140 billion in new debt, some likely rolled over from lower-interest rate debt, in just two days.

The bond market apparently likes the new Treasury secretary nominee, for reasons that elude me unless they think he is going to persuade Trump to not cut taxes and seriously cut spending, so that the deficit recedes.  Unfortunately, even if Bessent persuaded Trump of the need to address the deficit, Congress is up for election again in two years and not eager to let taxes rise and a lot of that spending goes to constituents and campaign donors.  And Bessent apparently is a tariff advocate, or at least says he is.  That won’t be good for inflation, jobs, economic growth or international relations.  Personally, I see no reason to think interest rates are going down.  Up seems a lot more likely.  If I were really rich I would take a nice strong position in bond derivatives betting on rates rising over the next two years.