What if they gave a Treasury bond auction and nobody came?
“Nobody” is highly unlikely but lower demand isn’t. That’s what happened at Thursday’s auction for $12 billion in 30-year Treasury bonds.
With demand lighter than expected yields climbed to 4.009%. Before the auction bond dealers were expecting the bonds to sell with a higher price and hence a lower yield of 3.9943%.
A few hundreds of a percentage point may not seem like much but it’s a huge shift for Treasuries, one of the world’s most liquid investments.
Demand, which had been 2.9 times supply in September’s auction, fell to just  2.3 times supply. The biggest drop in demand came from overseas investors including foreign central banks. In September’s auction overseas investors bought 46.5% of the auction compared with just 34.5% on Thursday.
Who can blame overseas investors for pulling back from the Treasury market? The U.S. dollar continues to drop. Each drop makes a U.S. Treasury worth a little bit less to investors who think and live in euros, renminbi, or won.Â
The Dollar Index, which tracks the dollar against basket of currencies, Â fell to the lowest level since August 2008 on Thursday.
And the U.S. economy continues to look like one of the world’s weakest with the recovery here lagging all of Asia, parts of Europe, and Brazil and Chile in South America.
I’d need a higher yield too before IÂ bought Treasury bonds against trends like those.
The relative strength of the euro versus the dollar is also a vote of relative confidence in the European Central Bank versus the Fed. This crisis has made the Fed seem politicized in the eyes of many foreign investors who fear that in the future the Fed will bail out the government by letting inflation go higher.
Foreign banks aren’t stupid. They are staying away from interest rate risk on the 30 year auction. Our economy is going to start recovering faster than anticipated, the dollar will level off somewhere and long term rates will go up some (but probably not enough to choke off the economy).
Public debt of Euro countries may be higher relative to GDP, but their citizens’ private debt is substantially lower. One thing that has become clear is we’ve been buying GDP with borrowed money for years. Currency markets look forward, not backwards.
I don’t quite understand why the Europe is relatively so much stronger. To my understanding, the debt to GDP ratio of many countries in Europe such as Italy, Spain, UK, as well as Japan in Asia is way worse than ours. And banks in Europe are on very shaky ground too, if not worse than US banks. Why is it every day I look at google finance, I usually see dollar down vs Euro.
This is what happens when we print trillions of dollars and plan on spending trillions more.
At least that means the stock market should go up..
I’d love to see Jubak picks expand more to the emerging markets, especially in BRIC. The decline of the USD will make foreign stocks appear more attractive for a while.