On the heels of Britain’s failed debt auction yesterday, our Treasury had its own trouble selling bonds. WSJ:
The indirect bid — demand from domestic and foreign institutions, including foreign central banks — for the $34 billion five-year Treasury note auction was 30%, compared to 48.9% from the previous auction in February and an average of 30.1% for the last 10 auctions.
The 10-year note declined 18/32, pushing its yield back up to 2.77%. The yield had fallen to around 2.50% last week after the Federal Reserve unveiled its plan to buy longer-term government debt.
Bloomberg noted the following:
U.S. securities dropped even after the Federal Reserve today bought $7.5 billion of Treasury notes, its first targeted purchases of U.S. securities since the early 1960s. The five- year auction drew a yield of 1.849 percent.
“This caught a lot of people unaware,” said Bulent Baygun, head of interest-rate strategy in New York at BNP Paribas Securities Corp., one of the 16 primary dealers that are required to bid at Treasury auctions. “Prior to the auction the Fed conducted its purchases of Treasuries, which may have compressed interest rates below where they would have been otherwise.”
Reader Ted asked in the comments earlier yesterday why I have such a big problem with budget deficits and with debt. It’s a good question, in light of all the posting I’ve done on the subject recently. Problem 1: it’s a matter of national security. To the degree our government isn’t able to fund itself, that may compromise our national interests. Problem 2: Crowding Out. The more debt Treasury dumps onto the market, the more upward pressure will be placed onto interest rates across the credit spectrum. As painful as it would be, letting the system de-leverage now would be preferable to racking up yet more debt to be worked off later.
Will the market be able to absorb the $2.5 trillion worth of Treasurys that Goldman says we’re on pace to sell in 2009?
