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Treasury bond auction runs into weak demand amid fears that soaring US debt will overwhelm Wall Street

Filip De Mott   

Treasury bond auction runs into weak demand amid fears that soaring US debt will overwhelm Wall Street
  • A Treasury bond auction saw weak demand on Thursday amid fears soaring US debt will overwhelm Wall Street.
  • The US sold $20 billion of 30-year bonds, but dealers had to take up more supply after investors balked.

A Treasury bond auction Thursday saw weak demand, adding to growing alarms that the explosion in the supply of US debt could overwhelm Wall Street.

The US sold $20 billion of 30-year bonds, but dealers had to take up 18% of the supply, more than the typical share of about 11%, after investors balked.

The auction tail, or the gap between the lowest bid price versus the average, was the narrowest since November 2021, according to the Financial Times, representing another sign of waning demand.

The yield on the 30-year Treasury jumped 12 basis points to 4.856%, and the 10-year yield surged 10 basis points to 4.7%.

Thursday's results followed other soft Treasury auctions this week, including a $46 billion sale of three-year notes and a $35 billion sale of 10-year bonds.

The auctions come as federal deficits have exploded this year, raising fears about investors' ability to absorb all the fresh debt the government must issue. Since June, the US has sold more than $1 trillion in T-bills.

It's also a sign that the earlier bond market sell-off has not yet concluded, as higher yields may be necessary to continue attracting bond buyers, further fueling deficits that make investors less keen to borrow.

Meanwhile, the Federal Reserve's quantitative tightening campaign has removed it as a major market buyer. This is where the Fed doesn't reinvest proceeds from matured bond assets, reducing its balance sheet.

But while this is true for short-term assets such as T-bills, the Fed has actually been picking up long-duration bonds since QT started in June of last year.

Market veteran Ed Yardeni pointed out in a note last month that the Fed seeks to moderate the impact of its QT program with continued purchases of Treasurys with maturities of 10 year of more.

Though QT has reduced the Fed's balance sheet by $1 trillion overall since beginning last year, the central bank has added around $77.5 billion in bonds with maturities of 10 years or more, according to St. Louis Fed data.




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