The renewed fighting in Iran and issues about oil supply have jacked up oil prices again and re-ignited inflation concerns, so it isn’t surprising that the two auctions of US debt this week resulted in higher rates. On Wednesday $13 billion in 20-year bonds was sold. The high interest rate was 5.16%, the highest in almost three years and consistent with a surge in rates in the aftermarket. The overall demand, as shown by the total amount of bids to the face value of the auction, was in line with recent averages. Foreign participation was above average, quite high, but that is likely due to the high interest rate, and apparently domestic bidders wanted an even higher rate to participate at a bigger level.
Today we had a TIPS auction with a real interest rate, or the rate after the inflation component, of 2.44%, which is quite high, in fact the highest since 2008. Can’t blame that on inflation, it has to be concerns about the inability of Congress to cut the deficit and the huge pile of debt that the US now has to service. And demand was also very weak. All in all, a poor week for US debt, both in these auctions and in the aftermarket. And these higher interest rates just add even more pressure on the deficit.
