Debt markets are getting yo-yoed with inflation concerns, the Iran conflict, the inability of the US to reduce deficits, etc. So every week is an adventure. This week started off with the short end, as usual, $69 billion in two-year notes. High yield was 4.19%, up from 4.07% the prior month and continuing the upward trend over the last year. Overall demand was right in line with recent averages, but foreign buying was a little weak, as it has been with shorter-term issuance.
On Wednesday, $70 billion in five-year notes was auctioned, with the high yield at 4.2%, basically identical to the two-year note auction yesterday, and up very slightly from last month’s auction. Overall demand was good, but foreign buying dropped significantly. It is somewhat of a mystery why for certain auctions domestic or foreign buyers are more willing to accept a lower interest rate. In any event, domestic buyers ended up with more of the auction than is typical this time.
The week finished up with a seven-year note on Thursday, $44 billion in face value, sold at a high yield of 4.26%, down a tad from last month. Overall demand, reflected in the ratio of bids to face value of the auction was in line with recent averages. But once again foreign buyers represented a much lower than usual portion of the winning bids. As with the five-year note auction, not clear to me if this is simply domestic buyers willing to take a lower interest rate or foreign buyers feeling like the rate to get a winning bid is too low.
The good news from this week’s auctions might be that at least on some of the shorter-term debt, rates have plateaued and may even head down.
