Friday, October 28, 2011

Scary Results of 7 Year Note Action Knocked Off Front Page By Stocks Surge

The following post from the Wall Street Journal did not get much attention due to attention being focused on the record breaking rally in stocks following the agreement that may temporarily move the European debt crisis off the front page for a while:

Treasurys Continue Their Terrible, Horrible, No Good, Very Bad Day.

"The Treasury Department’s auction of seven-year notes this afternoon fared miserably compared to the 2-year and 5-year sales earlier this week.

With investors cheering the eurozone debt deal, there’s been a broad selloff in safe-haven bonds all day, and the sloppy seven-year auction pushed bond prices to fresh session lows.

The 7-year notes were sold at a yield of 1.791%, higher than 1.759% traded right before the sale.

Overall demand, as reflected in the bid to cover ratio, was 2.59, the smallest since May 2009, compared to 2.75 from the previous four sales.

A gauge of foreign demand, the indirect bid was 33.9%, compared to 41.3% from the past four auctions.

While it is way to soon to sound the panic button, rising rates for U.S. debt will someday become a vicious circle. As the U.S. has to pay higher rates to fund the debt, the debt increases faster, and rates go up in a continuing cycle.

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