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$39 Billion 3 Year Auction Closes At 1.445% High Yield, 2.76 Bid-To-Cover
- Yields 1.445% vs. Exp. 1.441%
- Bid-To-Cover 2.76 vs. Avg. 2.80 (Prev. 3.02)
- Indirect Bid-To-Cover 1.34
- Indirects 49.1% vs. Avg. 50.45% (Prev. 54.23%)
- Allotted at high 61.96%
- Direct bidders at a sturdy 11%: money market guarantee expiration? Do directs prefer Treasuries over equities?
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What's another $39 billion in debt between friends
A lot has been made of the large share of treasury purchases made by the US government. What if that merely crowded out demand that would have surfaced from traditional buyers?
The Chinese would be more than happy to create "stimulus" through forced lending to try and placate a restless citizenry. The only way that could happen is to quit purchasing US debt. Now that QE is ending, we may find foreign (and domestic) demand for treasuries to be much higher than we believed. Judging by recent Shanghai market performance, it seems clear that lending has been tightened to correspond to an end of US treasury buybacks.
Don't you think the government would allow the traditional buyers to be first in line? Why would the government buy treasuries ahead of traditional demand?
Riddle me that Batman.
The Gov buys at lower interest rates. You know, to MANIPULATE them to stay down/low. If the REAL interest rate was allowed to happen it would be a disaster, and this is why the Federal Reserve has been manipulating via being 50% of the market.
There is no 'crowding out' that occurs. Rather, there is either a willingness to participate at the currently expected yield level, which would drive up the bid-to-cover ratio as more parties deem the current yield profitable, or , there is simply a state of parties deciding to not participate.
It is possible that 'traditional buyers', as you might be imagining them, are merely awaiting the Federal Reserve's departure via cessation of QE, triggering possibly higher yields as the bid-to-cover ratio presumably dwindles.
I don't expect that to occur in any marked fashion, as investors realize that beyond this current quarter's decent earnings reports, valuations are highly compromised in relationship to how things will be looking on the ground come May.
It has become conventional wisdom that treasury yields are lower than they otherwise would have been because of QE. The Fed purchased a large amount of Treasury debt creating artificial demand.
I was asking, what if that isn't true. What if there was demand for the paper without the government getting involved? As QE winds down we haven't seen an increase in yields even given heavy supplies. Foreign governments and other buyers let the US purchase treasuries because they had committed to it, freeing up cash say for stimulus efforts in China, Japan, and Europe. Now that the US government is getting out of Treasuries foreign buyers who we thought would not come back to the table at low yields may do so. They would have to end stimulus support in their home markets to do that, China has seen a faltering stock market amid rumbles that government would like to re tighten lending standers.
"What if there was demand for the paper without the government getting involved?"
There would have been, but since the Federal Reserve was supporting Treasuries pricing, that money instead flowed into riskier asset reflation action.
"Now that the US government is getting out of Treasuries, foreign buyers who we thought would not come back to the table at low yields, may do so."
Foreign buyers or not, demand for Treasuries will be strong as equities tumble, though we may see a couple bumpy auctions before we get to that point. Somewhat ironically, such an event would trigger an equities sell-off, driving investors into the security of Treasuries.
"They would have to end stimulus support in their home markets . . ."
This will happen, globally. After all, how much sovereign debt can be issued before the realization finally sets in that there is simply not enough income to offset debt.
vampire squid went red a while ago. wonder whats up.
Can someone explain to me what the following bond jargon means:
-bid-to-cover
-2s10 and 2s30
thanks
bid-to-cover = total bids as a multiple of bonds, there were 2.76 times as many bids as bonds
2s10s = 2 year verses the 10 year rate (this is more of a indication of distribution of buyers interest, ie are people prefering the short [The end is near!] or long [Nothing but daisies as far as the eye can see] duration bonds, this one is a three year)
2s30s = same as above, only more so