Oh, boy, good thing there aren’t many auctions this week. The first one on Tuesday is a real crack in the dike. $13 billion of 20-year bonds were sold. The high interest rate was a very high rate, 5.42%, the highest since this security was offered in 2020 and much higher than last month’s 5.2% and higher than expected. Demand also sucked, with overall demand below recent averages and foreign demand was the lowest since these auctions started. So all in all, a disastrous auction, but to be expected as our deficit is out-of-control and concerns mount about how we will continue to service that debt. Ludicrous statements about growing our way out of the debt issue aren’t helping.
The only other long-end auction this week was a 10-year inflation protected note on Thursday. The thing to watch here is the “real” rate, the rate after inflation, which presumably reflects repayment risk and other concerns. That rate was 2.65%, the highest in 18 years and higher than anticipated. Demand was also somewhat weak, the lowest in a year, which likely influenced the high yield.
The aftermarket is showing mixed effects, as traders are unsure about the Federal Reserve’s intentions on interest rates after the increase this week, and on the future impacts of the Iran conflict on oil supplies. Right now rates are down somewhat on the belief that the Iran conflict will end. If that conflict is somehow ended and/or Mideast countries find other ways to get their oil to market, we can expect significant easing of oil prices, which in turn will relax the pressure on interest rates. Big if.
