The shorter term note auctions have held up okay; significantly better than the long end. Not today. The usual massive sale of $58 billion in three-year notes was close to a disaster. The yield was 3.78%, lower than last month’s similar auction, but much higher than expected, in fact only twice before has there been as big a gab between actual and expected interest rate. Closely watched foreign buying actually held up pretty well, but direct purchases by US entities and persons was dismally low, abysmally low. Foreign demand may be related to expectations around currency exchange moves. You have to believe that the ten-year note auction tomorrow and the 30-year bond one on Friday will really stink. And if foreign buyers stay away, and they might, things could get beyond ugly. Stay tuned. (TD Release)
