With the backdrop of a 5 yr note yield at the highest level since mid Jan, the 5 yr auction was not good and the higher yield was still not tempting enough. The yield at 2.605% was well above the when issued level of about 2.56-2.57%. The bid to cover of 2.55 is above the one year average of 2.46 but is the lowest since Sept ’09. Indirect bidders totaled 39.7% which is the smallest since July ’09 and direct bidders came in at 10.8%. I don’t know if it was the healthcare bill and the budget/debt concerns associated with it, or the Fitch downgrade of Portugal, or a reaction to the slow recent creep up in LIBOR rates or a delayed reaction to the optimistic message the stock market has sent on the economy or a reaction to the improving economy, however modest but something has changed in the US Treasury market and the benchmark 10 yr rate is just within 1-2 bps of breaking out.

Category: MacroNotes

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

15 Responses to “5 yr note auction not good, is sea change upon us?”

  1. How many did the Fed buy this time?

  2. cognos says:

    “well above” = 3 bps?

    everytime the rates/curve moves up 20-50 bps everybody starts forecasting 6-8-10% rates. Happened 1-yr ago, last summer, and 2 months ago. Wont ever happen. Japan is the future.

    Medium term rates carry+roll huge versus 0-10bps in bills.

  3. scepticus says:

    “March 23 (Bloomberg) — The 10-year U.S. swap spread turned negative for the first time on record amid rising demand for higher-yielding assets such as corporate and emerging market securities.”

    http://www.businessweek.com/news/2010-03-23/ten-year-swap-spread-drops-to-low-on-renewed-demand-for-risk.html

    now folks, presumably if interest rates stay low and public debt stays high and goes higher, then the swap rate is going to stay negative.

    Assuming this remains the case and is not a temporary technical phenomenon what is this saying about the economy and the monetary system?

  4. postman says:

    While bonds drop, the dollar is very strong today. Where are the dollars going? To bonds–which are dropping sharply today? To the mildly lower stock market? To lower precious metals?

    How should we interpret the combination of a dollar move up with bonds going down? What future movement does this suggest?

  5. The Curmudgeon says:

    “Wont ever happen. Japan is the future.”

    If so, then it’s hard to see why you have such a sanguine outlook on the US economy. Japan is a basket case economically, fiscally and demographically going forward. If her birthrates remain the same, in a hundred years or so there will hardly be any Japanese left, and what few are left will be saddled with enormous debts left by their ancestors. If Japan is our future, I’d say it’s a rather grim one.

  6. torrie-amos says:

    probably more along the lines, all the sideline money that will be deployed has been deployed, so now it’s money from profits, and as isa says, not enough profit to support debt

  7. ashpelham2 says:

    I always struggle with the Japanese population issue. On one hand, everyone says it’s a dying nation with declining demographics. On the other hand, japan is developed, industrialized, and offer some of the better manufactured products in the known universe, Toyota Prius and Camry excluded, of course….

    While the economy there grows very slowly, why is thought of as not normal growth? Because they had such rapid growth in the 70′s and 80′s? We had rapid growth during the 2000′s, but it was crap and built on debt, so is it fair to say we will have “subdued” growth, when 1-2% might be perfectly normal?

    I don’t think Japan is going to fall into the sea. we might make them the 51st state though.

  8. super_trooper says:

    How about substantiating your posting with a couple of plots.

  9. torrie-amos says:

    Japans problems in simple terms are one of natural resources. They were always innovative, yet, not alot of commodities, thus, Japan plundered others. They attacked Pearl Harbor because they had essentially raped china for a decade while the rest of the world wrangled with Hitler.

    Japan was told repeatedly to leave china alone and did not and figured hey we bomb pearl harbor they will let us do what we want to cause they are stuck in Germany. Well, as Dr. Phil would say, How did that work out?

    Anyways, after duh bomb. Japan which was pretty damned industrialized to begin with, it’s specialty being machines and transportation, started all over with new equipment and began pumping out major quantities of everything, and then when electronics hit it big, they were the low cost guys……..there economy dominated low cost electronis, which they now sub out too other countires, autos which grew phenomenally during the 70-s and 80′s due to cheapness and gas problems, and the tried and true machines, ie, the machines that make machines……………..

    They had explosive off the chart growth and the bankers levered up and then it all went kaput, the government tried to keep and or pump growth thru keynesian stimulus, and it has basically failed for 20 years…………..the only thing it did was transfer all the bad bank debt onto the government, so now the corporations are fairly flush, banks okay, and taxpayers own a crap load of money to the rest of the world and themselves that is slowly going to blow up because like our own social security, now enough new folks to support old ones.

    Why many are so p’od about the bail-out is that they believe this is our destiny, all the facts are there just the end has not been written.

  10. beatstreet says:

    Japan has had a number of weak/failed JGB auctions throughout the last 10 years. Each time, folks rushed to declare the end of the JGB bull market. It was just a weak auction, nothing more.

  11. ashpelham2 says:

    I appreciate the Japan history lessons. That’s a lot of failed businesses and people jumping off of tall buildings condensed into a couple of paragraphs :D.

    Maybe we have some weak auctions in our future. Just can’t sell them like we used to because, let’s face the facts, we’re overextended. We’re at or near the limit for what other countries will bear.

  12. cognos says:

    Wierd comments.

    The Japanese are SUPER wealthy. Dont let “GDP growth rates” fool you. How about per capita? How about savings? Do you realize certain valuable products (Bluefin Tuna, Alaska King Crab, Kobe Beef, Louis Vuitton, tiny cutting edge electronics) are MAINLY consumed in Japan? Something like >80% of all bluefin tuna is consumer in Japan. Grok that.

    US will have different issues because we have immigration, different spend/save culture, different business culture (better, more flexible, more balance and more agressive). But the low-low rates world is simply an expression of an extremely wealthy society. You cannot give truly massive capital pools 10% rents risk-free. Wealthy pools are generally very risk averse.

  13. Pat G. says:

    The PIIGS collective, average debt to GDP is 85%. Ours is 91%. Sunday it was passage of the Health Care Reform Bill and today an Infrastructure Bill. And if somehow you are naive enough to believe that the former will actually bring down costs over the long haul and the latter doesn’t contain any pork barrel spending than I have a bridge to sell you…

  14. panchog says:

    I’m a Japanese, born and raised in Tokyo… and I can’t quite figure Japan out. Here is my take…

    Yes, the debt-to-GDP is sky high; but the Japanese Govt owes most of money to its citizens… the economists in Japan talk about your left hand lending money to your right hand. Now, would you send yourself to collection if you owe money to yourself? Would you be mad and break your knee cap if you can’t pay up the debt to yourself?

    Re: Demographics; yes it is dire… but the Govt is doing everything it can to hand out money to the new parents; kinda like a Helicopter Ben, but only for the newly weds and the new parents. We may not proliferate like the Chinese, but we won’t wither and extinct.

    I’m on the Peter Schiff/Jim Rogers/Marc Farber camp; the US is doomed because we owe money to Japan/China and the others. Marc Farber said it, “buy gold, every month, for the rest of your life” and you won’t be sorry.

  15. miutbc says:

    don’t with those 1.5gdp multipliers and the newly efficient government run health care the deficit should evaporate