The Federal Reserve Board meets this week, widely expected to make another cut in the interest rate they control, which doesn’t affect much of anything anymore. So the debt auctions are a little earlier, but may give us a sense of how the market views the upcoming rate change. Monday saw $58 billion in three-year notes sold. The interest rate was 3.61% up slightly from last month’s auction and other recent months’. Demand was about in line with the average, but foreign buying ticked up nicely. It appears that the foreign buyers like the shorter term debt. But in the after-market rates were generally up after the auction.
Tuesday $39 billion in the benchmark ten-year note was sold. High yield was 4.175%, right at the when-issued, but above November’s auction. Overall demand was in-line with recent averages and foreign buying was good. But the aftermarket rates generally were slightly higher. I will continue with the theme that inflation isn’t the issue driving the US debt market, it is current and coming supply, with no end in sight.
The final action, after the Federal Reserve rate cut on Wednesday, was yesterday, a key thirty-year bond sale of $22 billion. The high rate was 4.77%, up a fair amount from last month. Overall demand was in line with recent averages, as was closely-watched foreign buying. It is important to see what is happening in the after-market, however, and there we see that despite Federal Reserve rate cuts, rates on ten-year and thirty-year bonds are rising. The Federal Reserve may be able to impact short-term rates but they don’t control the rates that most impact consumers and businesses.
Personally, I think the best thing the Fed could do is refuse to facilitate the never-ending huge deficit spending by Congress and stop cutting rates or even raise them. And the Fed should never be in the business of buying US debt, it should eliminate its holdings over the next year and be banned from interfering in the market by such methods. That too would force Congress to get real on deficits and spending.
