Another good short-term debt auction yesterday. A huge $70 billion sale of five-year notes. Good interest rate, very good demand, especially from foreign buyers again. Part of the backdrop to these recent auctions is uncertainty about the broader economy and a very highly priced stock market. Some buyers have been rotating out of stocks into bonds, given the relatively higher rates, particularly for shorter term debt that can be rolled over in the not too distant future if rates do rise. At some point the amount of debt being issued will collide with how much can be absorbed without a rise in the interest paid. And the apparent extension of the 2016 tax cuts will not calm the market’s fears about deficit reduction not occurring.
