On Tuesday we had a 20-year bond auction, around $14 billion, so relatively small compared to recent auctions of shorter term debt. The high interest rate was 4.61%, a good bit lower than last month and slightly lower than expected. Foreign demand was moderate, but domestic buyers stepped up big time. I think the current dynamic is to get ahead of potential multiple Federal Reserve interest rate cuts, but not sure that will last long if inflation stays up and the deficit continues to rise. The only other longer term auction this week was $19 billion in inflation-adjusted or TIPS ten-year notes. The auction went poorly, with both a higher than expected high interest rate of 1.73% and weak demand, just a 2.2 bid to offered ratio. That 1.73% is just the premium over the inflation kicker. While the interest rate was higher than expected, it was lower than the prior auction of this security. Despite the Federal Reserve’s interest rate cut, after-market yields have generally risen on US debt this week, and I suspect that buyers are focused on likely ongoing higher inflation.
