The first auction of the week on Tuesday was for $58 billion in three-year notes. Although short-term paper had been performing relatively well, this auction was poor. While the interest rate was slightly lower than last month, it was higher than expected. And foreign buyer demand, which is critical for the success of these auctions, was weak. The great big beautiful bill doesn’t look so great to bond buyers. Not an auspicious start for the week’s auctions.
But as usual the bond market is fickle and on Wednesday $39 billion in ten-year notes were sold in a solid auction. The interest rate was 4.36%, a little lower than last month and very slightly lower than expected. Demand was pretty good, slightly lower than last month among foreigners, but domestic demand filled the gap nicely. I have given up trying to figure out what bond buyers are thinking.
And on Thursday we got the key 30-year bond auction, $22 billion worth, and it was also mixed auction. The high interest rate was 4.89% up a bit from last month. The 30 year rate is creeping up on that 5% level again. Slightly less foreign demand than the average, and again the domestic buyers covered the gap. Rates crept up in the after-market. It is highly unlikely in my view that interest rates are going to decline substantially, regardless of what the Federal Reserve does. And given the amount of debt to be issued, the Fed probably doesn’t want to look foolish by cutting the key rate, only to see the market ignore that action.
