Thursday, June 11, 2009

30-Year Treasury Bond Auction Result June 11, 2009

The stock market cheered, at least initially when the auction result was announced, and Dow Jones Industrial Average shot up to 8,877 before it came back down to end at 8,770, only 31 point above yesterday's close.

So the bond auction went better than what was already a very low expectation. But did it?

Today's auction was an "reopening" auction. According to Treasury Department,

"In a security reopening, the U.S. Treasury issues additional amounts of a previously issued security. The reopened security has the same maturity date and coupon interest rate as the original security, but with a different issue date and usually a different purchase price."

This year,

  • 30-year bond new issues were auctioned on February 12 and May 7; and
  • Reopening issues were auctioned on March 12 and today, June 11.
So, for reopening issues, what's important to look at seems to be the PRICE: How much the bidders are willing to bid down (or up, never say never). Of course that reflects in High yield number, Median yield number, Allotted at High, etc.

Here's a comparison table of the four issues of 30-year bond this year. I've noticed three things: 1) The reopening issues were more popular than the new issues; 2) the reopening issues are cheaper in price; 3) the price of the reopening issues this time was much cheaper than the price in March.

My conclusion: there's not much to celebrate. Foreign investors flocked to today's reopening because they can buy the Treasury bond at 4.25% coupon interest rate at 7% discount in price.

In March reopenings, they bid down the price by less than 2%. This time, they bid down by almost 7%. Two times don't make a trend, but they can be the start of the inflationary trend.

There are more reopenings to come, in 10-year note, 30-year bond, 5-year TIPS, 10-year TIPS, and 20-year TIPS. Just by writing this I get tired. I can't imagine how fatigued the bond market will have become by the year end. And this has to be repeated next year, probably year after next.

(Another interesting question to ask is this. Which foreign countries bought them today? Was it Chinese, or Japanese? Or Russians? Or was it Caribbean Banking Centers?)


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