The indirect bids at today’s 13 week and 26 week bill auctions were down sharply from both last week and from the auctions of the expiring paper. That’s a sign that Japan and other central banks did not show up at today’s auctions. The bid tendered on the 13 week bill was just $5 billion, the lowest it has been going back to at least February of 2010. Typically the bid tendered totals between $8 and $15 billion. The indirect bid taken was $4.8 billion, down from $13.6 billion last week and $7.3 billion on the maturing paper at the time of that auction.
The story was similar on the 26 week bill. The indirect bid tendered was just $7.8 billion, far lower than the typical $10-25 billion. The indirect bid taken was just $5.87 billion, which compares with $8.8 billion last week and $12.6 billion back in September when the maturing paper was auctioned.
This tends to support the warning that I posted in this weekend’s Fed Report that the BoJ would probably need to start selling holdings of US Treasuries to raise cash for the rebuilding effort. Stopping their purchases would go hand in hand with that. This would be just another bearish knock on effect of this horrendous human catastrophe.
So far the effects have not shown up in the yields on longer term paper. That could be coming next week when the Fed auctions 2, 5, and 7 year notes and 10 year TIPS. Foreign Central bank participation at these auctions has been gradually weakening for months. This could exacerbate the situation, although with the BoJ pumping $226 billion into the Japanese financial system today, some of that could create residual demand for US Treasuries. We’re in uncharted waters here. The initial signals look bearish, but that could change. We’ll get more clues from the 4 week bill tomorrow, and from the note auctions next week. I’ll have a complete update and perspective in the next Treasury update to be posted Thursday.