Tuesday started off the shortened week with a mediocre $69 billion two-year note auction, which priced at a high interest rate of 4.07%, up meaningfully from last month and consistent with the general rise in interest rates in recent weeks. Overall demand was in line with recent averages as was foreign buying, but again, the level of demand is related to interest rates, and if you have a high enough interest rate, you will get more demand.
Then on Wednesday, $70 billion in five year notes was auctioned, with a high yield of 4.18%, again up significantly from April. For some reason commentators called this a good auction, largely due to the foreign demand, which was slightly up from the average of recent months. The trend is clearly that interest rates needed to rise substantially to get an adequate number of bidders. That means higher interest payments, a bigger annual deficit and yet more debt.
The week wrapped up with $44 billion in seven year notes, high yield of 4.29%, again up significantly from last month’s 4.18%. Overall demand as measured by the ratio of bids to face amount was good and foreign buyers participated at a high level. The aftermarket has been somewhat volatile, but the general trend on US debt rates continues to be upward.
