In a somewhat unusual move, on Monday there were two US debt auctions of securities longer than the short-term Treasury bills. First up was a $69 billion sale of two-year notes. The high interest rate was 4.32% up significantly from last month’s 4.19%, although a little lower than expected, and continuing the upward trend even in short-term interest rates on US debt. Please note that interest rates are the cost of money and are themselves a contributor to inflation. Overall demand was good, as was foreign buyer participation. But those higher interest rates are the most important factor, as they reflect concern about future inflation and repayment capability, even on a two-year note.
The second auction on Monday was a $70 billion five-year note one. Equally concerning with this auction was the rise in interest rate, the high yield to get the auction done was 4.41%, up from 4.2% last month, and a little higher than expected. Overall demand was quite bad, the lowest in almost 5 years. Foreign demand was also weak as even the higher rates apparently didn’t entice that important segment of buyers for our debt.
The week ended early on Tuesday with a seven-year note, the auction schedule being modified due to the Federal Reserve Board meeting. $44 billion was sold at a high yield of 4.47%, up substantially again from 4.26% the prior month. Overall demand was essentially identical to last month and was in line with recent averages, while foreign participation was very good, much better than last month.
Then today the FRB held rates steady, a surprise to some who expected a rate hike in light of inflation pressures. In the aftermarket, rates are generally lower.
