We have too much government debt and there are and will be inevitable negative consequences as a result of that. And the inconsistent results in new debt auctions this year are a reflection of the difficulty of continuing to add to that debt pile. There was a $16 billion twenty-year bond auction on Wednesday and it was poor. The high interest rate was 4.71%, significantly higher than last month, and about as expected. Demand was not good, either overall in terms of the bid to amount issued ratio or the closely watched foreign buyer participation. The market does not like the long end of US debt.
The only other auction this week was for ten-year TIPS, or inflation protected notes. That auction also was not great. The TIPS debt pays interest at the rate settled on in the auction plus actual inflation over the term. The rate in the auction is the “real” rate and supposedly would reflect factors other than inflation. For this auction it was 1.84%, higher than expected. $19 billion was sold, and that interest rate was also higher than for the previous similar auction. Demand was pretty much in-line with other similar auctions. Foreign buyers took about 60% of the auction. (TW Post)
