U.s. Treasury Auction Today "an Ugly Mess"

[MOP]

Published: Tuesday, 28 Jul 2009 | 1:24 PM ET Text Size By: Reuters

The U.S. Treasury sold $42 billion in two-year debt on Tuesday in a sale that drew lackluster demand by some measures and might not bode well for other bond auctions later in the week.

Treasurys pared gains following the auction.

The $42 billion auction fetched a yield of 1.08 percent and a bid-to-cover ratio of 2.75. The results might not bode well for other bond auctions later in the week.

Demand overall was above average, measured by the bid-to-cover ratio. However, a key proxy for foreign interest, the indirect bidder category, was below average at 32.6 percent.

Longer-dated U.S. Treasury debt prices rose earlier as stocks retreated, taking back some of their recent gains and bolstering the safe-haven appeal of government debt.

"We ran so fast with stocks that there is probably going to be some profit taking, which is beneficial to bonds," said William Larkin, fixed income portfolio manager at Cabot Money Management in Salem, Mass.

Yields at auction were also slightly higher than expectations, gauged by trading in the when-issued market just before the sale. The two-year sale is part of this week's record $115 billion in coupon securities being auctioned.

With the government set to issue $2 trillion in new bonds this year to finance economic and financial rescues, investors have been watching for any signs of waning demand for U.S. debt, particularly among foreigners.

Treasury auctions have come under particularly close scrutiny since investors began to question the longevity of the United States' prized AAA credit rating back in May.

Analysts had expected relatively solid demand for the two-year notes, as their shorter maturity makes them less susceptible to economic uncertainty.

The Treasury will auction $39 billion of five-year notes Wednesday, and $28 billion of seven-year notes Thursday. It sold $6 billion of 20-year inflation-protected securities Monday, bringing this week's total coupon sales to $115 billion.

Two-year Treasury notes were trading 1/32 lower in price for a yield of 1.06 percent, up from 1.04 percent late Monday, while 30-year bonds were 15/32 higher for a yield of 4.60 percent, down from 4.63 percent late Monday.

http://www.cnbc.com/id/32184746

Interesting week ahead perhaps?

Edited July 28, 2009 by MOP

[the_austrian]

Because of the banking regulations, the commercial banks are able to print money for free so get a friend to print some for you at zero interest rate and buy some treasuries for guaranteed profit. Oh, that's what they're already doing.

[MOP]

Update:

Bonds Mixed Despite 2-Year Auction 'Mess'

Published: Tuesday, 28 Jul 2009 | 2:58 PM ET

Shorter-dated U.S. Treasury debt eased Tuesday after mixed results in an auction of $42 billion of two-year notes had some analysts wondering if the global appetite for U.S. government debt might be waning.

Longer-dated U.S. Treasury debt prices rose however as stocks showed some weakness, taking back a little of their recent gains and bolstering the safe-haven appeal of government debt.

"There is an allocation out of stocks and into bonds after the great run that stocks have had," said William O'Donnell, head of U.S. Treasury strategy at RBS Securities in Greenwich, Conn., adding however that the two-year note auction "was a much uglier mess than we would have expected."

Two-year Treasury notes were trading 3/32 lower in price for a yield of 1.10 percent, up from 1.04 percent late Monday, while the 30-year bond was 22/32 higher in price for a yield of 4.58 percent from 4.63 percent late Monday.

Benchmark 10-year Treasury notes were trading 5/32 higher in price for a yield of 3.71 percent from 3.72 percent late Monday.

http://www.cnbc.com/id/32184746

Edited July 28, 2009 by MOP

[interestrateripoff]

Will the worlds central banks QE and buy to create the illusion of the bonds selling?

[Guest Daddy Bear]

Will the worlds central banks QE and buy to create the illusion of the bonds selling?

Gee that would be really suprising if they did?

[MOP]

Will the worlds central banks QE and buy to create the illusion of the bonds selling?

"the indirect bidder category, was below average"

[MOP]

The indirect bids could be much worse than they are letting on:

US Treasury auction changes may overstate indirect bid

Wed Jun 24, 2009 2:10pm EDT

NEW YORK, June 24 (Reuters) - Recent changes to the way the U.S. Treasury tallies demand at its bond auctions may be artificially inflating "indirect bids," a category used by investors as a loose proxy for foreign demand.

Foreign investors own more than a quarter of the Treasury market, making their continued interest in U.S. bonds of paramount importance to the market.

At the very least, the Treasury's shift, made earlier this month, is confusing traders, prompting some to second-guess the apparent strong interest in recent auctions.

Indirect bids have been unusually strong of late, reaching a record 68 percent at Tuesday's two-year note sale, and exceeding 62 percent at Wednesday's sales of $37 billion in five-year notes.

"We're not going to make much of that, given the information we've gotten on the rule changes," said John Spinello, fixed-income strategist at Jefferies, a primary dealer. "The indirect bids are now going to be higher given the change in procedures."

Indirect bids are defined as ones that do not go through primary dealers, large banks that do business directly with the Fed and are required to actively take part in Treasury auctions.

Top officials in China and Russia have expressed unease about the growing U.S. budget deficit, slated for a record $1.75 trillion in fiscal 2009 alone. This means that traders pay extra close attention to foreign demand figures.

The Treasury's changes, contained in a June 1 entry to the Federal Register, relate to what it considers a "guaranteed bid." Under the previous arrangement, once a primary dealer offered securities at a pre-specified level to its customer, that bid was considered to be the dealer's own.

The matter was technical enough to confuse even industry veterans.

"We are not precisely sure what this all means," said Ward McCarthy, managing director at Stone & McCarthy Research Associates in Princeton, New Jersey.

"We spoke with some very seasoned market players with decades of experience on dealer trading floors who were similarly unsure what to make of the contents of the Federal Register."

The Federal Register entry can be found here

The Treasury was not immediately available for comment. (Additional reporting by Ellen Freilich and Kristina Cooke; Editing by Kenneth Barry)

http://www.reuters.com/article/bondsNews/i...425368520090624

So have I got this right? Foreign demand for the 2-year has dropped from 68% to 32% in a month even with this new rule change possibly inflating the latest demand figures artificially?

Edited July 28, 2009 by MOP

[lowrentyieldmakessense(honest!)]

The indirect bids could be much worse than they are letting on:

http://www.reuters.com/article/bondsNews/i...425368520090624

So have I got this right? Foreign demand for the 2-year has dropped from 68% to 32% in a month even with this new rule change possibly inflating the latest demand figures artificially?

more currency swaps needed

[MOP]

5-Year Auction Generates Weak Response; Treasurys Fall

Published: Wednesday, 29 Jul 2009 | 1:08 PM ET Text Size By: Reuters

Treasurys fell after an auction of 5-year government debt saw another tepid response, with investors getting a yield of 2.689 percent on a swell of $39 billion in supply.

The results come a day after a similarly weak auction of 2-year notes showing a reticence for government debt as a record supply of $115 billion comes on line this week.

The bid gathered a bid-to-call ratio of 1.92 against the recent normal of 2.20.

Treasury debt prices had gained earlier as lower stocks bolstered government debt's safe-haven appeal, although investors were on edge over a record amount of new debt supply coming to market this week.

An unexpectedly sharp fall in new orders for long-lasting goods in June illustrated to investors that the economy remains in dire straits and supported bond prices....................CONTINUES

http://www.cnbc.com/id/32201716

Getting interesting.

Edited July 29, 2009 by MOP

[Bloo Loo]

1.92 cover ratio.

that mean there were nearly $2 on the table for each one up for auction???

hardly a problem.

[MOP]

1.92 cover ratio.

that mean there were nearly $2 on the table for each one up for auction???

hardly a problem.

TREASURY'S $39B 5-YEAR NOTE AUCTION BID-TO-COVER RATIO: 1.92 V 2.58 PRIOR AND 2.20 AVG OVER THE LAST 10 AUCTIONS.

This is not good surely?

Edited July 29, 2009 by MOP

[getdoon_weebobby]

This is not good IMO.

interest rates up

house prices doon

[Bloo Loo]

This is not good surely?

i dont know, looks like a queue at the door and half the bidders disappointed to me.

[MOP]

i dont know, looks like a queue at the door and half the bidders disappointed to me.

Indirect bid today was 36.7%. Seems pretty weak considering the recent rule change on indirect bids (see post #7).

[Laura]

It is at times like this that I realise I have not the faintest idea what is going/not going on

[Bloo Loo]

Indirect bid today was 36.7%. Seems pretty weak considering the recent rule change on indirect bids (see post #7).

probably bernanke on the phone to his proxy.

[MOP]

Treasuries Fall After Record Sale of $39 Billion of Notes

Share | Email | Print | A A A

By Susanne Walker and Daniel Kruger

July 29 (Bloomberg) -- Treasuries fell for a second day after the government’s record $39 billion auction of five-year notes drew a higher-than-forecast yield, renewing concern the deluge of U.S. debt being sold will overwhelm investor demand.

The notes drew a yield of 2.689 percent, compared with a forecast of 2.635 percent in a Bloomberg News survey of eight of the Federal Reserve’s primary dealers. Indirect bidders, a class of investors that includes foreign central banks bought 36.7 percent of the notes, down from 62.8 percent of the securities at the June sale, the highest since December 2004.

“You’re starting to see customers pull back from the market,†said Thomas L. di Galoma, head of U.S. rates trading at Guggenheim Capital Markets LLC, a New-York based brokerage for institutional investors. “It’s been a fundamental shift in central bank buying.â€

The yield on the benchmark 10-year note rose two basis points to 3.72 percent at 1:16 p.m. in New York, according to BGCantor Market Data. The yield climbed to 3.76 percent on July 27, the highest level since June 22.

The existing five-year note yield rose eight basis points to 2.68 percent, after dropping as low as 2.55 percent.

The sale is the biggest offering of the notes since the Treasury began issuing five-year notes in 1953, according to the Department’s Bureau of the Public Debt. Last month’s $37 billion sale of the securities was the previous record.

Bid-To-Cover

The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered was 1.92, compared with an average of 2.2 at the last 10 auctions. It was the third of four auctions totaling $115 billion that is the largest amount of so-called coupon securities sold in a single week.

At the June 24 auction, the notes drew a yield of 2.7 percent, the highest since October. The so-called bid-to-cover ratio was 2.58 last month, the highest since October 2007. The average indirect bid for the past 10 auctions is 36.8 percent.

The five-year note sale will be followed by a $28 billion offering of seven-year securities tomorrow. The government sold $42 billion of two-year debt yesterday and $6 billion of 20-year Treasury Inflation Protected Securities on July 27.

The U.S. raised $1.02 trillion this year selling Treasury securities to help finance a recovery from the recession, government data show. In its next round of auctions, the U.S. will sell three-, 10- and 30-year securities on three consecutive days beginning Aug. 11.

Revised Estimate

Goldman Sachs Group Inc. said the U.S. will sell about $2.9 trillion of debt in the two years ending September 2010, cutting its estimate for Treasury auctions by 28 percent, as the economy improves.

President Barack Obama will sell a net $1.9 trillion of debt in the current fiscal year that ends Sept. 30, Goldman said in its report late yesterday. In March it forecast $2.7 trillion. Goldman, also a primary dealer, trimmed its projection for sales the next fiscal year to $1 trillion from $1.35 trillion, wrote Ed McKelvey, senior U.S. economist in New York.

The report “has helped 10s and bonds,†said William O’Donnell, U.S. government bond strategist at primary dealer RBS Securities Inc. in Stamford, Connecticut. “To the extent that the supply story is not going to be bad, I would think that’s a positive for longer-term Treasuries.â€

The U.S. federal deficit will be $1.725 trillion for this fiscal year and $1.4 trillion in the following 12 months, McKelvey wrote. In March, Goldman estimated the figures at $1.86 trillion and $1.5 trillion.

‘Certainly a Concern’

Two-year notes fell yesterday after the debt sold at a higher-than-forecast yield. Indirect bidders bought 33 percent of the notes, compared with 68.7 percent at the June auction, the most in at least six years.

“The lack of indirect bid was certainly a concern for the front-end,†said Dan Orlando, head of U.S. government bond trading at primary dealer Deutsche Bank Securities Inc. in New York.

The difference in yield, or spread, between two- and 10- year notes fell to as low as 2.53 percentage points, the narrowest in two weeks.

The Fed has bought $222.719 billion in U.S. debt since its purchases began on March 25. The central bank the Fed is scheduled to buy notes due from May 2012 to November 2013.

Treasuries lost 0.5 percent this month, compared with a 0.3 percent advance for German government bonds, according to Merrill Lynch & Co. indexes.

The financial crisis, which started with the collapse of the U.S. property market in 2007, has triggered $1.52 trillion of writedowns and credit losses at banks and other institutions and sent the global economy into its first recession since World War II. The government and the Fed have spent, lent or committed more than $12 trillion in a bid to revive the economy and credit markets.

To contact the reporters on this story: Susanne Walker in New York at swalker33@bloomberg.net; Daniel Kruger in New York at dkruger1@bloomberg.net

Last Updated: July 29, 2009 13:21 EDT

http://www.bloomberg.com/apps/news?pid=206...id=atlt4AM.HBLA

[ChumpusRex]

i dont know, looks like a queue at the door and half the bidders disappointed to me.

True. However, in context it's pretty poor.

Short duration treasuries like these are normally in very high demand. Certainly. If you go back a year or 2, you'll find bid-cover ratios of over 3 sometimes over 4. Indeed, a bid-cover ratio of less than 3 has been regarded as dissapointing, although over the last few months demand has been tailing off a bit, and supply has been increasing.

Nevertheless, bid-cover of under 2 for such short bonds is worrying, as it is these where demand is strongest.

[interestrateripoff]

TREASURY'S $39B 5-YEAR NOTE AUCTION BID-TO-COVER RATIO: 1.92 V 2.58 PRIOR AND 2.20 AVG OVER THE LAST 10 AUCTIONS.

Like Laura I'm afraid I have no idea what this gibberish is. Can someone please explain what the hell this means.

[D.C.]

TREASURY'S $39B 5-YEAR NOTE AUCTION

The treasury held an auction for $39 billion of notes that mature in 5 years.

BID-TO-COVER RATIO: 1.92

They received 1.92 bids for every dollar they were auctioning

V 2.58 PRIOR

The last auction they held attracted 2.58 bids for every dollar they auctioning

AND 2.20 AVG OVER THE LAST 10 AUCTIONS.

...You get the picture

Lots of bids at an auction always works out better for the seller, if you are getting a lot of demand you can drop the rate of return. If demand is weak you need to make the return more attractive to be able to sell your debt.

Low demand means getting into debt is getting more expensive for the American taxpayer.

[Bloo Loo]

TREASURY'S $39B 5-YEAR NOTE AUCTION

The treasury held an auction for $39 billion of notes that mature in 5 years.

BID-TO-COVER RATIO: 1.92

They received 1.92 bids for every dollar they were auctioning

V 2.58 PRIOR

The last auction they held attracted 2.58 bids for every dollar they auctioning

AND 2.20 AVG OVER THE LAST 10 AUCTIONS.

...You get the picture

Lots of bids at an auction always works out better for the seller, if you are getting a lot of demand you can drop the rate of return. If demand is weak you need to make the return more attractive to be able to sell your debt.

Low demand means getting into debt is getting more expensive for the American taxpayer.

I get it, cheap as chips if the auction room is empty.

[interestrateripoff]

TREASURY'S $39B 5-YEAR NOTE AUCTION

The treasury held an auction for $39 billion of notes that mature in 5 years.

BID-TO-COVER RATIO: 1.92

They received 1.92 bids for every dollar they were auctioning

V 2.58 PRIOR

The last auction they held attracted 2.58 bids for every dollar they auctioning

AND 2.20 AVG OVER THE LAST 10 AUCTIONS.

...You get the picture

Lots of bids at an auction always works out better for the seller, if you are getting a lot of demand you can drop the rate of return. If demand is weak you need to make the return more attractive to be able to sell your debt.

Low demand means getting into debt is getting more expensive for the American taxpayer.

Thanks, it's now no longer gibberish.

If the avg was 2.2 then surely there must have been some other auctions where it went as low as 1.92?

[moonriver]

TREASURY'S $39B 5-YEAR NOTE AUCTION

The treasury held an auction for $39 billion of notes that mature in 5 years.

BID-TO-COVER RATIO: 1.92

They received 1.92 bids for every dollar they were auctioning

V 2.58 PRIOR

The last auction they held attracted 2.58 bids for every dollar they auctioning

AND 2.20 AVG OVER THE LAST 10 AUCTIONS.

...You get the picture

Lots of bids at an auction always works out better for the seller, if you are getting a lot of demand you can drop the rate of return. If demand is weak you need to make the return more attractive to be able to sell your debt.

Low demand means getting into debt is getting more expensive for the American taxpayer.

Thanks for the explaination,

one of the things I like about this site, is the knowledge I gain from the other posters here, who are willing to educate.

[interestrateripoff]

http://market-ticker.denninger.net/archive...n-Schedule.html

Let's see if I can count this up....

70 day CMBs, $30 billion (tomorrow)

13 week Bills, $32 billion (July 27th)

26 week Bills, $31 billion (July 27th)

52 week Bills, $27 billion (July 28th)

2 year Notes, $42 billion (July 28th)

5 year Notes, $39 billion (July 29th)

7 year Notes, $28 billion (July 30th)

19 year, 6 month TIPS (reopened), $6 billion (July 27th)

That's two hundred thirty-five billion dollars over the next week!

So the US have flogged nearly all of this debt then?

[MOP]

http://market-ticker.denninger.net/archive...n-Schedule.html

So the US have flogged nearly all of this debt then?

The 7-year auction is tomorrow with the three-, 10- and 30-year on three consecutive days beginning Aug. 11.

This is where things could get tricky.

Edited July 29, 2009 by MOP