On Wednesday we had an auction of $13 billion in twenty-year bonds. The high yield was 4.94%, down very slightly from last month’s auction. It was also a little lower than expected. Demand was solid, both foreign and domestic. I will again note, however, that rates are substantially higher than two years ago, contributing to the ongoing rise in total US interest payments. And despite the solid auction, in the aftermarket, rates on US debt are rising. Buyers understand that the overall US debt market is stressed and they also likely perceive that as trade deals are finalized, the US economy will be stronger than previously expected and inflation may be higher.
Then today $21 billion in ten-year inflation-adjusted notes sold with a high yield of 1.985%. That is the basic rate, your principal adjusts based on inflation (or deflation, which will never happen in the US) and your total interest can increase and you get paid the adjusted value when the bond matures. My interpretation is that investors expect inflation to be pretty consistent and increase their interest payments over time, but they are demanding more of a risk premium compared to even a year ago, likely reflecting ongoing concerns about our debt pile and fiscal situation.
