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US Economy: The US Treasury Auction series: The 30-Y Bond flies through, dangerously low

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Image by kevindean via Flickr

While the store sales Index from Goldman Sachs had gloom on offer, already omnipresent.. the housing indices offer hopium(Thanks Zero @zerohedge)  ( if you can believe in QE3, you will take this with all econo-meals today, it’s so good! ) now after two years of drudgery. Because it is still a case of speaking too soon, the MBA report hiding the gloom of  purchase applications riding over the minute positive in the sale of existing homes, the growth in refi rate per se persisting for the two weeks at 9.3% following last week’s 15.3% means that at least homeowners are looking at refinancing for the 4.5% rate now available in mortgages , something they were not even trying last month.

However today’s subject matter is neither the MBA report nor the declining Petroleum inventories, which are also not a bad signal once you remember that Americans have started spending less on Gas as a trend since 2009 , and not just a sign of penury, refusing to drive as long as they did losing a 1billion miles travelled year on year every month the trend holding since three years back  

The job at hand is to gauge the reasons for the ebullient 30-Y bond auction we are about to celebrate in a couple of hours. Primary Dealers picking up only 30% in the 10 -Y option, is a good sign for this great white elephant discontinued in 2001 for five years ( In 2004 were even running a zero budget) and even with a new shutdown looming large, the investors are not likely to leave out this chance to get invested in the safe haven home of the US Dollar, much like Japanese who despite a 234% Debt on their GDP keep investing in their own Yen bonds, in that case because for them home means the only possible safe haven. Here of course, fx mechanics of the coming fifty years would be purveyed to by an equal 55%-65% Foreign investors in the 30-Y auction, likely.

However, Treasuries are up this afternoon and demand could bid up the prices faster to the dreaded deflation corridor ( if one has been defined ) with 30 year rates going to the overnight fund rate of less than 0.5% in case of a run. To be real, 10 -Y bonds are trading below 2% and that is not so interesting for US watchers. Fed meeting yesterday had kept bond prices in check and bonds could stay within the latest normal yield corridors of 2% and 3% for 10–Y and 30-Y if debt ceiling discussions and Congress stalemates somehow avoid a financial impact like a shutdown. It is going to get ugly there, of course.

Italian 5 year paper went at a higher 6.47% but that  is a very healthy number and the German Bunds ( 2 year ) raised more than $5 bln for that scary low rate of 0.29% Personally I prefer higher rates even if they are inflationary than the other way round, and history seems to back me up. France of course shutdown before Christmas canceling its last auction of the year planned for the last Tuesday of the year.

Right now people could return to trading yields instead of bonds for prices if more direct yield instruments were created probably. Bid up the yield anmd make a profit not  the other way around. May be the world needs it.

Post Auction update: The now monthly auctions since the last two years, have dropped yields from 4.52% to 2.93% in this December auction coming down 1.59% on the 30-Y term since January’s 4.515% Bid to Cover Ratio is also a twelve year high at 3.06 after a dismal 2.4 last month

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One comment on “US Economy: The US Treasury Auction series: The 30-Y Bond flies through, dangerously low

  1. Pingback: US Economy: Auto PMI (Chicago) foretells of a great December resurgence, Pending home sales up 7.3% | The Banking and Strategy Initiative

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