The Banking and Strategy Initiative

Chillin' out till it needs to be funded

US Economy: The US Treasury Auction week: 2yr, 5 yr and 7 yr notes

The gold rush of last week apart, this week’s three big auctions running back to back till Wednesday complete the Treasury’s long term borrowing program on an even keel as the $915 bln bill to keep the Government going runs thru the usual hiccups with the Boehner team showing up almost unwittingly in the crossfire between pro Tax and pro welfare cuts economics in the election year.

Politically the GOP Elephant may not be getting a ride this year despite Newt Gingrich and Mrs Gingrich putting their best foot forward, even if the BLS figures for unemployment are to be belied very soon.

The reason, retail sales are up 3.5% per the Redbook and Housing Starts follow MBA report into a happy recovery of over 50% in the Boston and (presumably) New York Districts while continuing at 20%+ in LA and other West ( not yet Las Vegas till November) Even as yesterday’s Housing index was only 21 compared to 20, the conditions for Housing are sunny enough to assume that US mortgage maret recovery is also happening finally with  only Chicago (Midwest) andfd the South remaining dull for now with a heavy 20% loss year on year in Housing starts. According to econoday, the most optimistic rise in starts has been in multi family homes. Housing permits were up too, by a good 6% following o n the 9% uptick in October. This also means that the normal dip after the strong sudden rise in September has not yet come in Housing permits data and 2011 ends on a strong note.

All the statistics, finally just strengthen the world view that US treasuries are something to stay invested in now esp for a safety from  the conditions at home for most investors. Japan in the meantime is following the new $18 blnYuan bon d market into diversifying its reserve portfolio with Chinese Treasuries for a change. It already holds a lot of US Treasuries

The 2 yr auction went by on a Bid Cover rate of a big 3.45 fetching the $35 bln easily, while the yields were a dismal 0.24% 2012 should however see yields rising and for investors looking to hold the resulting price depreciation would not be a matter of concern. The 5 yr and 7 yr auctions also of above $30 bln would be issued today and tomorrow while the 3 month and 6 month T Bill auctions this week also continue on a cover of more than 4 despite the negligible yields, with the Dollar giving gains to withstand most troubles and this time striking commodities into  a down spiral for a few additional weeks

The 5 yr bills saw a healthy bid cover ratio of 2.9 and at a yield of 0.88% saw 60% interest from investors and 40% from dealers





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