With the attacks in Iran, uncertain economic numbers, concerns about inflation, etc.; no surprise that this could be a volatile week for US debt. The normal rules about a flight to safety may not apply any more either, as the US debt and deficit situation doesn’t necessarily mean that more demand equals lower interest rates. And sure enough, a three-year note auction on Tuesday did not go well. The $58 billion offering priced at a high interest rate of 3.58%, up a good bit from last month, but similar to most yields in the last few months’ auctions. This was, however, higher than anticipated in the “when-issued” price. Overall demand was the weakest in months and foreign buyers also took down a lower than average portion of the auction.
Wednesday brought the closely watched ten-year note auction, $39 billion which priced at 4.22%, as with yesterday’s auction, above last month’s auction and higher than expected, although given geo-political uncertainty, maybe this should be expected. Overall demand was a little weak, but foreign demand was strong, which is good as we need foreigners to keep financing our deficits. While the ten-year yield was up in the after-market, it closed lower than this auction price.
And today was the grand-daddy of all US debt auctions, the longest duration, $22 billion in thirty-year bonds. High yield was 4.87%, significantly above February’s 4.75%, but lower than expected. Demand overall was in line with the recent average but well below February. Foreign buying was weaker than average. Some said it was a good auction, doesn’t look like it to me, although maybe it was better than expected due to the oil price inflation affected from the Iran attacks. This security continues to hover near the 5% mark, a sure sign that the market remains very concerned about our deficits and debt. In the aftermarket rates are rising.
