On Tuesday, a very strong auction of three-year notes, against a backdrop of almost certain interest rate cuts this month and signs of a weakening economy. Another very large auction–$58 billion–once more demonstrating just how massive our debt pile is. The high interest rate was 3.49%, down sharply from last month, and a fair amount below the expectation. Demand was very strong, especially among foreign buyers. In the aftermarket, short-term rates, those five-years and under, on US debt were trading lower, but longer-term bonds are remaining at a fairly stable range.
Wednesday, another very strong auction, ten-year notes that priced at a high interest rate of 4.03%, again down substantially from last month. Demand also extremely strong; and once more foreigners did more than their usual share of buying. Of course, the not so good news is that we added another $39 billion to the debt load. I suspect the strong auctions this week reflect the now certainty that there will be a large Federal Reserve interest rate cut, and buyers believing that rates on US debt may go yet lower. I suspect that belief may run into the obvious inflation tendencies lurking just beneath the surface.
And Thursday finished off a very good week for US debt auctions with a $22 billion 30-year bond auction. Once again the interest rate, 4.61% was down from last month’s and about as expected. Foreign demand was good, as was overall interest in the auction. Yippee, another $119 billion in debt for us! After-market interest rates are up today, it is going to be hard to see them go much lower now that a reduction by the Federal Researve is a done deal.
