The US Treasury sold $728 billion of securities across eight auctions this week, with the three coupon sales, three-year notes, 10-year notes and 30-year bonds, clearing at yields not seen at auction in more than two decades. The $121 billion of longer-dated paper required those elevated yields to find buyers, while $607 billion of bills across six auctions all priced above 4 percent.
Bills replace maturing stock
Six bill auctions ranging from four-week to 26-week maturities accounted for the bulk of the week’s supply. Four of those sales exceeded $100 billion each. Most of the bill volume rolled maturing obligations, and the investment rate on every tranche settled above 4 percent.
Coupon auctions breach 20-year ceiling
The three-year note auction on Tuesday stopped at 4.932 percent, the highest auction yield since May 2006 and up from 4.474 percent at the previous month’s sale. Secondary-market trading had already pushed the three-year above 5 percent in late September; the day before the auction it touched 4.98 percent. Post-auction, the yield ranged between 4.88 percent and 4.96 percent and finished the week at 4.92 percent. Since February the three-year has risen 150 basis points, a move that prices in multiple rate increases on top of the September hike.
Wednesday’s 10-year note auction cleared at 5.30 percent for $39 billion, the highest auction yield since November 2000, when the dot-com unwind was slowing growth ahead of the March 2001 recession. In the first half of 2000, 10-year auction yields had been in the 6.5 percent area. The result was less disorderly than when-issued trading had suggested, and the secondary-market yield slipped to 5.24 percent by Friday’s close. From late February to the auction the 10-year had climbed more than 130 basis points; it now stands 125 basis points higher over that span.
Deficits and competition for capital
Annual deficits running near $2 trillion require continuous debt issuance, and each new sale must attract fresh buyers at higher yields. At the same time, corporate issuers are tapping markets at wider spreads: SpaceX 10-year notes traded at 7.20 percent on Friday, roughly 200 basis points above the Treasury benchmark. Inflation, meanwhile, has yet to return to target, keeping upward pressure on the term premium.