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Interesting Debt Auctions Today

By January 27, 2025Commentary

The stock market is overvalued, very overvalued, but it really is concentrated in tech names, especially those involved in artificial intelligence.  Today’s announcement, probably mostly hype, that a group in China has created an AI capability for far less money, shock up all those overvalued tech stocks.  And it also bizarrely, to me, prompted buyers to go get US Treasury Debt which resulted in a lowering of rates.  And then we had two auctions which seemed pretty inconsistent.  The first was for $69 billion in two-year notes, where demand has typically been strong.  The yield was 4.2%.  Demand was a little soft, so not a great auction.  Then this afternoon came $70 billion in five-year notes.  This auction had good demand at a yield of 4.33%, a little lower than expected.

But here is what you should really notice.  On one day the US Government sold almost $140 billion in new debt.  Now some is rollover from expiring debt, but most is new debt.  There is no way this amount of debt is easily absorbed without substantial pushback in the market on yields.

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