Retail Investors Buy Record Amounts Of Six-Month Bills In Monday's Auction
Several months ago, a Goldman trader penned the phrase JOMO (or the Joy Of Missing Out from the daily chaos in stocks) to describe the growing infatuation - across both institutional and retail investors - with generously-yielding fixed income instruments, at the expense of equities which not that long were the only game in town (a time when FOMO dominated). And nowhere was this more obvious than in today's 6-Month bill auction.
As Bloomberg notes, retail investors took the most six-month Treasury bills at an auction in nearly 30 years as high interest rates trumped concerns over Federal Reserve tightening.
Noncompetitive bidders, a group of bond buyers which tend to be smaller investors that want to passively accept the auction yield without the risk of submitting a competitive bid, took $2.84 billion of six-month bills at Monday’s auction.
That, as shown in the chart below, was a near-record bid by retail, second only to the $2.88 billion awarded on June 27, 1994, Treasury Department data show. At this rate, expect a new record retail print as soon as next week's 6M Bill auction.
Today's $48 billion auction stood out in yet another way: the stop-out yield of 4.97% was the highest for a six-month offering since January 2007.
“Generally, intermediate bills have struggled to generate investor demand due to risks associated with the prospects of a more hawkish Fed, and uncertainty about the debt ceiling,” Jefferies economists Thomas Simons and Aneta Markowska say in a note. “However, with the small cut in supply for 3s, and the high outright yield levels offered, the auctions did a bit better today”
As a reminder, the yield on six-month bills initially rose above 5% on Feb. 14, making it the first US government obligation to reach that threshold in 16 years. That yield is slightly higher than those on 4-month and one-year bills, which according to BBG reflect reflecting concerns over the trajectory of Fed rate hikes and the risk that Congress will fail to raise the debt ceiling before Treasury exhausts its cash reserves. According to various forecasts, the D-Day will realistically hit some time in September or October, which roughly coincides with the maturity of the current 6Month. Of course, in case of a default, repayment on said Bill will be in limbo indefinitely.
While we doubt that the US will default (there will be the usual last minute fireworks but in the end holdout republicans will fold, although we may need a modest scare in stocks to get there), what is more interesting is that so many retail investors are shifting their portfolios to debt securities, whether floating or fixed rate, that continued tightening by the Fed - which ends up pushing yields even higher - will soon have the effect of easing financial conditions as it boosts how much disposable income savers end up getting in the form of interest income. As for those who never saved anything and live month to month on their credit card, better luck next time.