Here it comes.
US 5yr Bond Auction Effectively FAILSThat's right, FAILS.
No, you didn't hear it reported this way and won't, but that's the math.
Here you have the results:
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And here's the math:
1.923 BTC X 61.59% Primary Dealer bid = 1.18 BTC (PD), greater than 1.0. Or to put it a different way, but for the primary dealers the bid-to-cover was less than one, meaning that some of the issue would have been left on the table.
Thats a fail; but for the primary dealers the issue would not have subscribed.
Primary dealers are required to bid. That's the deal in exchange for their being named as "primary dealers." For this reason short of thermonuclear war you will never see an actual (BTC < 1.0) "fail" on a US Treasury Auction - Treasury has rigged the process so as to insure that cannot be reported.
Therefore, the question is this: Less the primary dealer "bid" (forced by agreement) was there sufficient interest to subscribe the issue, and the answer is NO.
Those who think this is "no big deal" need to have their head examined. In general any BTC under 2.0 indicates a serious problem,
and the perverse nature of the primary dealer system is the reason.The United States' Credit Card (issued by China and Japan) is being slowly cut off. That the stock market "recovered" after this ridiculously bad auction (bow-wow is the best way to describe it) speaks to the vacuum between the ears of both the cheerleaders in the mainstream media and those in the equity markets.
There is only one other time in recent memory that we've had a bond market auction fail like this. You might want to go have a look at your charts - with dates - for what followed shortly thereafter.
They're going to try to sell 7yrs tomorrow, and then the real fun begins with the quarterly refunding. That ought to be a real riot.President Obama, you might want to have a chat with Bill Clinton about the Bond Market and Hillarycare, lest you wind up learning this lesson the hard way.
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Treasuries Decline Before $28 Billion Seven-Year Note AuctionBy Gavin Finch and Theresa Barraclough
July 30 (Bloomberg) -- Treasuries fell, with the yield on the seven-year note approaching the highest level in more than a month before a $28 billion sale of the securities, as stock gains damped demand for the relative safety of government debt.
Ten- and 30-year debt led declines as the MSCI World Index rose for the first time in three days. Today’s auction is the last of four debt offerings this week, totaling $115 billion. Sales in the past two days drew higher yields than expected,
signaling demand is waning for the record amount of debt the U.S. is selling this year.“This week’s auctions have been pretty disappointing,” said Peter Mueller, a fixed-income strategist at Commerzbank AG in Frankfurt. “Bonds will take their direction from what is going on in the equity markets in the coming days. Risk sentiment is still all-important.”
The yield on the seven-year note rose 4 basis points to 3.33 percent as of 10 a.m. in London, according to BGCantor Market Data. The 3.25 percent security due June 2016 fell 7/32, or $2.19 per $1,000 face amount, to 99 15/32.
The two-year yield increased 2 basis points to 1.19 percent after rising to 1.22 percent yesterday, the highest since June 19. The price of the note has fallen for four days, the longest losing streak since the period ended May 27.
The MSCI World Index of shares gained 0.4 percent. U.S. stock index futures also advanced.
The Treasury sold $39 billion of five-year securities yesterday, $42 billion of two-year debt on July 28 and $6 billion of 20-year Treasury Inflation Protected Securities on July 27.
U.S. BingeThe result of the auctions this week “sparked fears that the U.S. binge was finally wearing out investors,” Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., part of the world’s largest interbank broker, wrote in a research note today.
Indirect bidders bought 36.7 percent of the five-year notes sold yesterday, down from 62.8 percent at the June sale, which was the highest since December 2004. The same class of investors purchased 33 percent of the two-year notes offered this week, compared with 68.7 percent in the previous auction in June.
“For the second successive session, the Treasury market was knocked violently out of its stride by a weak auction, with low indirect bids,” said John Wraith, head of sterling-rate product development at RBC Capital Markets in London.
The securities scheduled for sale today yielded 3.33 percent in pre-auction trading, the same as the rate at the previous sale of the maturity on June 25.
Record SalesThe U.S. raised $1.02 trillion this year selling Treasuries, government data show. In its next round of auctions, the U.S. will sell three-, 10- and 30-year securities on three consecutive days beginning Aug. 11.
Goldman Sachs Group Inc. predicts the U.S. will sell about $2.9 trillion of debt in the two years ending September 2010, cutting its estimate for Treasury auctions by 28 percent, as the economy improves.Treasuries trimmed losses as the Federal Reserve prepared to buy notes maturing from May 2012 to November 2013 today.
Longer-maturity debt gained yesterday as the Fed purchased $2.999 billion of Treasuries maturing between February 2021 and February 2026 as part of its plan to cap borrowing costs. The central bank has bought $222.719 billion in Treasuries since its purchases began on March 25.
‘Extremely Attractive’Treasury two-year notes may rise because policy makers are likely to leave interest rates unchanged for a prolonged period, according to Daiwa Securities SMBC Co., a unit of Japan’s second-largest brokerage.
“Two-year yields are extremely attractive as we cannot expect a rate hike,” said Yasutoshi Nagai, Tokyo-based chief economist at Daiwa Securities. “The yield is too high.”
Two-year yields are 92 basis points above the upper range of the Fed interest rate, the widest spread in more than a month, according to data compiled by Bloomberg. That spread may narrow to 65 basis points, Nagai said. His prediction is higher than forecasts in a Bloomberg survey of economists, who say the difference will narrow to 84 basis points by Sept. 30.
Federal-funds futures contracts on the Chicago Board of Trade show a 58 percent chance policy makers will leave borrowing costs unchanged by year-end. The odds were 53 percent a month earlier.
Investors should favor debt and stocks of “strong” companies because U.S. economic growth will be closer to 3 percent than the range of 5 percent to 7 percent for the past 15 years, said Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co.
‘Investment Potion’“There is no investment potion for this new environment other than steady income-producing bond and equity investments in companies with strong balance sheets and high dividend yields,” Gross wrote in his August investment outlook on Pimco’s Web site.
U.S. corporate bonds rated A to AAA by Standard & Poor’s returned 7.3 percent this year, according to indexes compiled by Merrill Lynch & Co., as the economy improved and investors sought higher yields than those offered by government debt. Merrill’s U.S. Treasury Master Index posted a 4.9 percent loss.
Yields suggest the Fed’s efforts to keep borrowing costs low are meeting some success.
The London interbank offered rate, or Libor, that banks say they charge each other to borrow in dollars for three months, declined less than a basis point to 0.49 percent yesterday, staying below 0.50 percent for a third day, the British Bankers’ Association said.