Another week in the roller-coaster US debt market, which mostly has seen rates heading up with no plunge in sight. We started off with another $69 billion in two-year notes, sold at a high interest rate of 4.71%, down slightly from 4.79% last month, a relief after months of ever-increasing rates, and right about where expected. Overall demand was weaker than recent averages, and foreign buyers were few, but domestic buyers stepped up their proportion of the auction. For two years, this is likely a nice return above expected inflation, so buyers from somewhere ought to be interested.
A similar trend on Wednesday with a $70 billion five-year note auction. High yield of 4.85%, down from last month’s 5.03% and just about where expected. Overall demand as reflected in the amount of bids compared to the face value of the notes to be sold, was just about average and foreign buying was good. So we are seeing a welcome downtick in interest rates, at least at the lower end, which is less subject to concerns about the long-run fiscal solvency of the US.
The final auction was $44 billion in seven-year notes on Thursday. The high interest rate was 4.89% down a good chunk from last month’s 5.09%. Overall demand and foreign demand was about right in line with recent averages. The message from this week’s auctions appears to be that short to mid-term interest rates are actually declining. I am not sure if there is something in the inflation data that leads people to believe it is subsiding or if the turmoil in the stock market is sending investors to the relative safety of US debt.
