Investing

Long-Bond Auction Conundrum

Burning Money PicEarlier today came the results from a highly awaited $16 billion 30-Year Treasury bond auction… the famed ‘Long Bond.’  The 30-Year yield went out to buyers at 4.469%, just over 0.04% or 4 basis-points, higher than what the when-issued bill had been trading at.  In short, this was not exactly a high-demand auction.  The bid-to-cover ratio was 2.26.  While not awful, this is far from a successful auction for the long-end of the yield curve.

All in all it might not be a horrible ratio, but that is down from 2.54 at the last 30-Year auction and under other recent auctions.  And foreign buyer interest was 44%, under the 48% at the last auction.  Interestingly enough, the direct bids rose to 11.9%.  Full details on the Long Bond auction

are available at the Treasury site.

The old long bond (August) is also trading at 4.45% as of 1:23 PM EST according to Bloomberg pricing data.  Where this gets interesting is in the international front.  Sure the US Dollar is at inflection points, but it is easy to understand why foreign central banks do not want to bid up and up for a 30-Year instrument.  If inflation picks up in 2010 and beyond as so many expect, then the yield rise will kill the market value of these bonds.  Add in a weaker dollar as so many fear for the future, and it only compounds the issue.

One issue to look at is the various national debt clocks that exist online.  They almost never really match up, but Treasury Direct listed the tally as of November 9 as being a whopping $11,990,022,541,364.79.  That is broken down as $7.588 trillion for US public debt and over $4.4 trillion in intragovernmental holdings.  This auction brought the tally for the week at more than $80 billion in Treasury auctions.

It has been well over a decade now that just about everyone has complained about the rise of the public debt levels in the U.S.  You never know when it will be that the warning eventually comes true, but you can count on one thing.  It will come at the moment that the United States is at its weakest point.  Anyhow, this was supposed to be about the Long-Bond auction today….

When you have seen a 60% rise in the stock market since the March lows… When you add in fears of inflation and rising commodities with oil having recently been back over $80 and gold over $1,100… and add in the long-term fears of the US Dollar being replaced as the ultimate reserve currency and benchmark for the world… Are you eager to lend the money for 30 years at less than 4.50%?

Walking through the valley of the shadow of debt…

JON C. OGG