Almost every week, due to our huge debt mess, the US has to auction tens of billions in new debt, adding even more to the interest burden on the budget. This week started with a two-year note on Tuesday, the usual massive $69 billion worth. The interest rate was 3.57%, down a fair bit from last month and slightly lower than expected. Demand was mediocre, and really kind of poor among the critical foreign buyers. The after-market was little affected by the results.
The foreign buyer reticence continued on Wednesday in the $70 billion five-year note auction, which was a dud. High interest rate was 3.71%, slightly lower than the August auction and very slightly higher than expected. Overall demand, or the bid amounts compared to offered amount, was a little below the recent average. Foreign demand was down, but domestic buyers stepped in at a good level. The after-market was unimpressed, as interest rates rose on the day.
And the week continued its downward slide with a truly bad 7-year note auction today, the worst since 2021. $44 billion more debt issued, at a high interest rate of 3.95%, up from last month’s auction. Note that it appears at seven years or more, buyers aren’t interested in low rates, they are anxious about inflation. This rate was also significantly higher than the “when issued” or expected rate. Foreign buyers clearly have had enough, at least this week, as they participated at a very low level, requiring domestic buyers and the primary dealers to buy more than usual, while overall demand was quite weak.
Rates jumped in the aftermarket. Next week has longer term auctions and if demand is like that in this week’s auction, we will see higher rates. I will remind you that the Federal Reserve cut the interest rate it controls and US Treasury buyers simply don’t care. The aftermarket in Treasuries has higher interest rates today as well. Buckle up, it will be a rough fall.
