Wednesday, March 25, 2009

Selling Long Term Debt Getting Shaky...

If people are awakened to the fact that selling trillions worth of debt is going to be difficult, well, welcome to reality.

U.K. Suffers Failed Bond Auction:

Here’s what Mike Larson had to say about their auction and ours as well…

Weak 5-year auction leads to bond selling

In the wake of the failed U.K. auction of 40-year gilts, the bond market is paying close attention to this week's U.S. Treasury auctions. We're in the process of selling $98 billion of 2-year, 5-year, and 7-year notes, the biggest weekly sales of longer-term debt in U.S. history. And while I wouldn't call the 5-year auction a failure, it certainly wasn't strong.

The $34 billion of 5-year notes were sold at a yield of 1.849%, above pre-market talk of 1.801%, per Bloomberg. The bid-to-cover ratio came in at 2.02, below the average of 2.18 at the last 10 sales and down from 2.21 in the February auction. Indirect bidders purchased just 30% of the notes on offer, down from 48.9% at the last auction and the lowest since December.

Bonds are getting spanked in the wake of this sale. The long bond futures are down 1 26/32 now, with a virulent sell off taking place after the auction results came public at 1 p.m. What makes the sell off all the more interesting is that it is happening DESPITE the first actual Fed purchases of U.S. Treasuries. The Fed bought $7.5 billion of Treasuries with maturities in the 2016 to 2019 timeframe.

Catch that last sentence?