This is a very important week for US debt auctions, with 3-year, 10-year and 30-year debt being sold and the trade and inflation and BBB chaos flying around. What will demand look like and what kind of interest rates will buyers want to buy the increasing pile of US debt? The first 3-year note auction started things off on Tuesday. Mediocre would be the word. Lukewarm demand, a higher interest rate than last month and slightly higher than expected. Foreign buyers hung in there. I would anticipate that the longer term auctions would be worse, but with the current news cycle, anything can happen.
And everyone was feeling better about trade, inflation, etc. on Wednesday, so the ten-year auction went fairly smoothly. Note first the very large size of this auction, $39 billion. Note also that the interest rate paid to the winning bidders is higher than it was last month, at 4.42%. Note that this trend of much higher interest rates paid on the debt than two or three years or five years ago continues which means that since a lot of the issuance is rollover of maturing debt, the current interest expense just keeps going up. Demand remains good among foreigners, likely due to who knows what calculations are being made about trade deficit sizes and currency exchange rates.
And finally Thursday, the longest term debt, 30-year bonds, were auctioned. Timing is everything as Israel attacked Iran after this auction was completed and rates on longer-maturity Treasuries are up today, which must be over fears of higher oil prices impacting inflation, because bonds are normally viewed as the safe haven. $25 billion of these bonds were sold, which is a large auction, with a high yield of 4.84%, up from last month. Some analysts call this a good auction, but I don’t think the higher rates needed to get buyers is a positive sign. Foreign demand was strong. The 30-year bond today is at 4.92%, up significantly from yesterday. Every week is an adventure in bond auction land.
