Challenging Week Coming for U.S. Treasury Market

By Allan Robinson

U.S. Treasury markets barely budged ahead of Monday afternoon’s $40 billion (U.S.) auction of three-year notes, but the real action for most of this week will focus on long-term bonds.

Tuesday there will be an auction of $25 billion in 10-year bonds. Bond markets will be closed on Wednesday for Remembrance Day in Canada and Veterans Day in the U.S. On Thursday there will be an auction of $16 billion in 30-year U.S. Treasuries.

The yield on 10-year and 30-year U.S. Treasuries have climbed seven basis points and 14 points during the past five trading days, respectively, to 3.49% and 4.4%. (A basis point is 1/100th of a percentage point.)

It should be “a challenging week for the U.S. Treasury market,” said David Rosenberg, chief economist and strategist for Gluskin Sheff + Associates Inc. in a report to clients. “This is a record debt supply and the $81 billion handily takes out the $75 billion a month ago.”

There is also speculation that the U.S. Treasury will increase the duration of its portfolio by issuing more long-term bonds, which is likely to push long-term interest rates higher.

“So far [bond] supply hasn’t been a problem thanks to safe haven demands and the need to find a home for the trillions of dollars sloshing through the system,” said Kim Rupert, managing director of Action Economics. “But in the back of everyone’s mind is when will demand dry up and auctions fail?”

Comments

[Northern Da...:]

With the FED now openly signaling its clear intention to let the dollar drop off the face of the earth, who in their right minds would want to buy this paper? But after it's sold or given away or whatever, I have a hunch we could see the scoundrels pulling off the dirtiest surprise of the year that will catch all dollar bears off guard, and make the dollar reverse suddenly and violently higher.

Looks to me like the chart of the $NDX is all set up for an island reversal, considering that today's blow-off is on volume that might be impressive on a Sunday.

Nov 09 03:17 PM

[JeffDB:]

I certainly can't imagine why there seems to be enough demand to soak up the massive supply of debt at such very low rates. There's no way I would want to invest money long term at those interest rates. Not much payoff for the amount of risk involved.

Nov 09 03:58 PM

[untrusting ...:]

If the Fed gave you money at 0-0.25% (like GS, WFC, etc. can get it for) and you could turn around and invest it in US debt at 3 - 4.5%, effectively getting 3-4% free interest, would you do it? Why do you think the big banks are not lending to anyone? They get ultra cheap Fed borrowing and guaranteed higher returns with no risk, and that is exactly what they are doing. Why should they lend to you for the extra risk involved, when they can make risk free money?

How you would you like say a $20 billion loan at almost nothing and get to earn say 4% on that? 4% x $20 billion is a big chuck of change, especially when it's so easy for them.


On Nov 09 03:58 PM JeffDB wrote:

> I certainly can't imagine why there seems to be enough demand to
> soak up the massive supply of debt at such very low rates. There's
> no way I would want to invest money long term at those interest rates.
> Not much payoff for the amount of risk involved.

Nov 09 05:40 PM

[Teutonic Kn...:]

untrusting investor - - -

You put it succinctly right. It is nothing more than a Shell Game. (Period).

TK


On Nov 09 05:40 PM untrusting investor wrote:

> If the Fed gave you money at 0-0.25% (like GS, WFC, etc. can get
> it for) and you could turn around and invest it in US debt at 3 -
> 4.5%, effectively getting 3-4% free interest, would you do it? Why
> do you think the big banks are not lending to anyone? They get ultra
> cheap Fed borrowing and guaranteed higher returns with no risk, and
> that is exactly what they are doing. Why should they lend to you
> for the extra risk involved, when they can make risk free money?
>
>
> How you would you like say a $20 billion loan at almost nothing and
> get to earn say 4% on that? 4% x $20 billion is a big chuck of change,
> especially when it's so easy for them.

Nov 09 06:55 PM

[Dave Wrixon:]

How else do you think the Banks balance sheets are being repaired? It is being done by stealth with tax payers money. Banks only make money if they lend. The higher rates are the more money they make, if they can sustain the lending volume. With low rates and low volume there is no way on this Earth they can be profitable in a market where even then borrowers are defaulting in huge numbers.

But lets make it clear, much of the investment in Treasuries is effectively a charitable donation, not that most of you have any discretion as to whether you subscribe. However, some blind fools think seem to think they can make a killing standing shoulder to shoulder with those doing the bailing out. To those I say, "Go get yourselves an education!"


On Nov 09 05:40 PM untrusting investor wrote:

> If the Fed gave you money at 0-0.25% (like GS, WFC, etc. can get
> it for) and you could turn around and invest it in US debt at 3 -
> 4.5%, effectively getting 3-4% free interest, would you do it? Why
> do you think the big banks are not lending to anyone? They get ultra
> cheap Fed borrowing and guaranteed higher returns with no risk, and
> that is exactly what they are doing. Why should they lend to you
> for the extra risk involved, when they can make risk free money?
>
>
> How you would you like say a $20 billion loan at almost nothing and
> get to earn say 4% on that? 4% x $20 billion is a big chuck of change,
> especially when it's so easy for them.

Nov 10 04:09 AM