Short term US debt auctions have gone fairly well recently, although the size is pretty alarming. $69 billion in two-year notes today, sold at a better than expected interest rate, around 4.1% and lower than the last auction. Demand was somewhat lackluster, but foreign buyers were by far the largest pool. With Europe and Asia experiencing weak economies and somewhat lower debt yields, the US may look more attractive. The lower two-year rates appeared to have the effect of pulling down the key 10-year yield, which Secretary of the Treasury Bessent has focused on. I am deeply skeptical that this decline in rates will be lasting, particularly at the long end. Continuing to fund the debt and deficits at the short end is expensive and likely to stay expensive unless and until there are clear signs of progress on the deficit. DOGE hasn’t really done squat and the proposed budget for 2026 does squat. Sooner or later, the Treasury is going to have to bite the bullet and issue more long-term debt, to avoid getting caught with really high short-term ones.
