Treasury Auction of 13-Week Bill

The U.S. Treasury Department auctions 13-week bill every single week to fund the government operations (I hope). It auctioned this week's batch today, but one number caught my attention: Indirect Bidders.

This week, 13-week bill attracted only $4.62 billion of Indirect Bidders' money (which represents foreign buyers of Treasuries), or only 14.4% of total sales of $32 billion.

In June and July, the Indirect Bidder percentages of 13-week bill were:

• July 20: 44.3%
• July 13: 51.5%
• July 6: 32%
• June 29: 53%
• June 22: 29%
• June 15: 35.8%
• June 8: 34.9%
• June 1: 51.2%

If foreigners including foreign central banks stop rolling over the U.S. short-term debt, it would be some problem here... One week doesn't make a trend, but it is worth keeping an eye on it.

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Treasury Auctions for Week of June 22, 2009

Treasury Department will auction the following Treasury securities in the week of June 22, 2009. Hang on...

Monday June 22, 2009

• 13-week bill: $31 billion
• 26-week bill: $30 billion

Tuesday June 23, 2009

• 2-year note: $40 billion

Wednesday June 24, 2009

• 5-year note: $37 billion (up $2 billion from $35 billion last month)

Thursday June 25, 2009

• 7-year note: $27 billion (up $1 billion from $26 billion last month)

Total for the week: $166 billion

• Bills: $61 billion
• Notes: $104 billion

Total SO FAR for the month of June: $341 billion

• Bills: $276 billion (includes $26 billion 1-year bill)
• Notes and bonds: $65 billion

If you think that's too much debt, think this gets repeated every single month for the rest of the year, if not longer. On course to annual $2 trillion debt in notes and bonds (it will be about $300 billion more if I include 1-year bill).

FYI, watch out if New York Fed will do any open market operation, particularly days when they auction notes. (http://www.newyorkfed.org/markets/openmarket.html)

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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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10-Year Treasury Note Auction Result Is In

And judging by the market reaction, it is not good. Both stock market and bond market are sinking deeper.

I frankly don't know what the traders were expecting, for them to get disappointed like this. The key numbers of the auction is posted in the right-hand column, next to this post. (Here's the original announcement.)

Foreign participation was slightly better than the last auction, and bid to cover ratio is also higher than the last. What spooked the traders may be the yield.

Over 46% of the auction was allotted at the high yield at 3.99%.

In the last auction, only 22% of the auction was allotted at the high yield. Right before the auction result announcement, 10-year note yield was 3.94%.

Higher foreign participation demanding the higher yield for the risk they are taking.... Hmmm, it looks like bond vigilantes are intensifying their attack.

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Treasury Primary Dealers Under Pressure?

This week, the US Treasury Department is set to auction $157 billion worth of Treasury securities. There seems to be an increasing angst in the market: who is going to buy all these debts and how?

Primary Dealers are the banks, both US and foreign, who are required to bid at Treasury auctions. The current Primary Dealers, as released by the New York Fed, are as follows:

• BNP Paribas Securities Corp.
• Banc of America Securities LLC
• Barclays Capital Inc.
• Cantor Fitzgerald & Co.
• Citigroup Global Markets Inc.
• Credit Suisse Securities (USA) LLC
• Daiwa Securities America Inc.
• Deutsche Bank Securities Inc.
• Dresdner Kleinwort Securities LLC
• Goldman, Sachs & Co.
• HSBC Securities (USA) Inc.
• J. P. Morgan Securities Inc.
• Mizuho Securities USA Inc.
• Morgan Stanley & Co. Incorporated
• RBS Securities Inc.
• UBS Securities LLC.

In addition to weekly auctions of various Treasury bills (4 to 52-week), longer-term Treasury notes and bonds are sold every 2 weeks. 3-year note, 10-year note and 30-year bond are usually sold in the same week, so are 2-year note, 5-year note and 7-year note. This week, it is 3-year, 10-year, 30-year combo.

Just to give you an idea of how much debt is being issued, take 3-year note as an example:

In 2009, 5 auctions have been completed; there are 7 more to go. Each auction sells between $32 to 35 billion worth of 3-year note. So, by the end of this year Treasury will have sold between $384 and 420 billion. In 2008 there were two 3-year note auctions that sold $53 billion total.

How about 5-year note?

Treasury auctions 5-year note every month. This year, the size of each auction is well over $30 billion. In 2008, it was between $15 and 28 billion. In 2007 it was between $14 and 16 billion. In two years, the size of each auction doubled.

Or 7-year note, which is offered for the first time this year:

So far this year 4 auctions have been completed, with each auction selling $26 billion. There are at least 5 more auctions scheduled.

Or 10-year note:

Treasury is set to auction 10-year note every month this year. 10-year note was auctioned every month also in 2008, but prior to 2008 it was auctioned only 8 times a year. This year's auction size is between $16 and 22 billion. In 2008 it was between $10 and 20 billion. In 2006 it was between $9 and 15 billion. In 2000, there were only 4 auctions, in which $46 billion total was auctioned.

In May alone, Treasury auctioned $172 billion worth of Treasury note and bond. $172 billion times 12 months equals $2 trillion. And this is not counting Treasury bills (4-week, 13-week, 26-week sold every week - about $30 billion each, 52-week once a month, about $25 billion).

So who has the money to buy all these debts? Or who wants to buy them? Foreigners are dropping out of longer-dated Treasuries. Will the primary dealers be able to continue buying them and selling to someone else, without becoming insolvent themselves? (Some say these banks are already insolvent.) Or will we start to see the primary dealers refuse to buy Treasuries? The Federal Reserve's $300 billion pledge to purchase Treasuries over the 6-month period (starting March) won't be anywhere near sufficient, I'm afraid.

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Treasury Auction Schedule for Week of 6/8/09

Treasury Department will auction the following Treasury securities next week:

6/8/09 Monday

• 13-week bill: $31 billion
• 26-week bill: $31 billion

6/9/09 Tuesday

• 3-year note: $35 billion

6/10/09 Wednesday

• 9-year-11-month note: $19 billion

6/11/09 Thursday

• 29-year 11-month bond: $11 billion

Week total: $127 billion

Putting it in perspective, Cuba's annual GDP (measured by PPP) is about $125 billion; Thailand's foreign currency reserve is about $120 billion. The last two times 30-year bond was auctioned (5/7, 3/12), the stock market went up on a weekly basis (up 4%, and up 8%, respectively).

Things to watch out for:

• Bid to cover ratio
• Indirect Bidder participation on all of them

Latvia is in turmoil after the government failed to sell ANY bill at their Treasury auction (6/3/09 Telegraph UK, here).

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Tuesday June 2 Treasury Auction Results

Tuesday's auction results are as follows:

4-week bill: $35 billion

• Primary Dealer: $16.88 billion
• Direct Bidder: $3.19 billion
• Indirect Bidder (foreign): $14.63 billion
• Bid to cover ratio: 3.34
• Indirect Bidder percentage: 42%

52-week bill: $26 billion

• Primary Dealer: $13.64 billion
• Direct Bidder: $1.73 billion
• Indirect Bidder (foreign): $10.48 billion
• Bid to cover ratio: 3.60
• Indirect Bidder percentage: 40%

The trend continues from yesterday: foreign bidders like shorter end of Treasuries.

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Monday June 1 Treasury Auction Results

Results of Monday's Treasury bill auctions:

91-day (13-week) bill: $31 billion

• Primary Dealer: $12.13 billion
• Direct Bidder: $1.55 billion
• Indirect Bidder (foreign): $15.88 billion
• Bid to cover ratio: 3.57
• Indirect bidder percentage: 51%

182-day (26-week) bill: $31 billion

• Primary Dealer: $13.99 billion
• Direct Bidder: $1.49 billion
• Indirect Bidder (foreign): $14.29 billion
• Bid to cover ratio: 3.14
• Indirect Bidder percentage: 46%

Significantly high foreign bidder percentage for both auctions for short-term Treasuries. No wonder yield curve is steep (see posts.)

On Tuesday, there will be auctions for 4-week bill and 52-week bill.

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Thursday's Treasury Auction Result

The result of 7-year note auction is in, from Treasurydirect.gov.

7-year note: $26 billion

• Primary Dealer: $16.50 billion
• Direct Bidder: $905 million
• Indirect Bidder (foreign): $8.56 billion (33%)
• Bid to cover ratio: 2.26

The stock market dipped into negative territory, probably in anticipation of the bad result of the auction. The result, clearly, was not as bad as they had feared. Or at least the Treasury note buyers haven't turned around and started selling yet, like they did yesterday.

Dow is up 60 points, Nasdaz up 11 points, and S&P500 up 11 points at 1:15pm EST.

The yield on the 5-year Treasury note is up, 10-year's yield is up slightly and 30-year's yield is down slightly. (Looks like the Fed may be frantically buying the long end, into which bond investors are selling... It could be long-dated mortgage securities the Fed is buying.)

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Wednesday's Treasury Auction Results

From TreasuryDirect.gov.

4-week bill: $35 billion

• Primary Dealer: $23.04 billion
• Direct Bidder: $2.53 billion
• Indirect Bidder: 8.35 billion
• Bid to cover ratio: 3.24

5-year note: $35 billion

• Primary Dealer: $18.47 billion
• Direct Bidder: $977 million
• Indirect Bidder: $15.44 billion
• Bid to cover ratio: 2.32

The result of 5-year note auction seems to have triggered a sudden downturn in the stock market. Dow Jones Industrial Average went from 8,449 (1:33pm EST) to 8,358 (2:09pm EST). It is also causing the yields on 10-year note and 30-year bond to rise significantly.

Bid to cover ratio was above average (the average is 2.27), indirect bidder was 44% (the average is 27.9%). So what didn't they like? Maybe these?

• Interest Rate: 2-1/4%
• High Yield: 2.310%
• Allotted at High: 44.97%

Maybe all foreign buyers (indirect bidder) wanted higher yield.

Gold went down on the news. That's peculiar. (Gold bullion dealers happen to be Treasury primary dealers.)

Mr. Treasury Secretary, are you still standing by your word that the rising Treasury yields are the sign that things are improving?

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Tuesday's Treasury Auction Results

From TreasuryDirect.gov. Looks like a successful auction, judging by the bid to cover ratios and foreign participation.

13-week bill: $31 billion sold

• Primary dealer: $20 billion
• Direct bidder: $760 million
• Indirect bidder (foreign): $7.6 billion
• Bid to cover ratio: 3.42

26-week bill: $30 billion sold

• Primary dealer: $15.9 billion
• Direct bidder: $1.4 billion
• Indirect bidder: $10.9 billion
• Bid to cover ratio: 3.09

2-Year notes: sold $40 billion

• Primary Dealer: $17 billion
• Direct bidder: $894 million
• Indirect bidder: $21 billion
• Bid to cover ratio: 2.94

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Treasury Auction for the Week of May 26

Department of Treasury is selling the following Treasury bills and notes next week.

• Tuesday May 26: 13-week bill, $31 billion
• Tuesday May 26: 26-week bill, $30 billion
• Tuesday May 26: 2-year note, $40 billion
• Wednesday May 27: 5-year note, $35 billion
• Thursday May 28: 7-year note, $26 billion
  
  Total for the week: $162 billion

The total amount is even bigger than the May 4 week, during which $155 billion worth of Treasuries were auctioned.

Week of May 4 was the last week before the Mercury Retrograde fully hit, and the market gained significantly. Not sure at all about the next week.

The stock market has been shaky all week, and today's pooper was S&P downgrade of the United Kingdom's outlook to "negative", threatening the downgrade of the UK's credit rating. Not so much of the UK itself, but clearly the market reaction was "Will the US be next?" Long-dated Treasury yields spiked up, and the market went down. Now it's almost back to the beginning of the week.

Increasing uneasiness, that something is getting unhinged yet again, is in the air. As you can see in the headlines of SKF bloggers (right column), they seems to be feeling it too.

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30-Year Treasury Auction Update: "Messy"

Briefing.com's Market Update has a succinct summary of the auction result:

"1:30 pm : Stocks have retreated to a fresh session low in the wake of a messy bond auction, which had plenty of subscribers (offering covered more than 2-to-1 by bidders), but it failed to offer the yield that was desired. That has prompted many traders to dump Treasuries.

"In turn, the 30-year Bond has shed 46 ticks, which has pushed its yield up to 4.25%. Meanwhile, the benchmark 10-year Note is down 26 ticks, which has lifted its yield to 3.27%."

And here is the detail from Bloomberg: Treasuries Tumble as Bond Sale Draws Higher-Than-Forecast Yield

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(11:52am PST) 30-year Treasury auction was the smallest in $ amount among this week's offerings. And yet it has turned out to be the party pooper for the market - not the stress test leaks, not the GM share dilution. Who could have known?

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30-Year Treasury Bond Auction Today

Today is the auction day for 30-year Treasury Bond ($14 billion), the last of the batch for the week. The top chart is the 6-month chart of 30-year Treasury yield, the bottom chart is today's intraday chart. Traders (I suppose) have been slamming the yield (conversely, bidding the price up) hard since the opening, as the stock market heads south and gold price reverses to the south.

The market is under pressure from "less bad" unemployment numbers. Go figure. It could be from ever-dribbling "stress test" result pressure. Who knows.. It's Mercury Retrograde. See the post below.)

Supply pressure and buoyant stock markets around the world have been pressuring the Treasury yields (yield goes up as the Treasury note/bond price goes down), and the yields on 10-year notes and 30-year bonds are back to the Fed's pre-quantitative easing days (i.e. before December 1, 2008).

The Federal Reserve is the buyer of last resort, and some people are fearing that it may become the only buyer.

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Upcoming Treasury auction weighing down on the stock market

The stock market can't seem to decide whether it wants to go up or down. It spent just about entire April that way, and today, first day of "Sell in May and go away" May, it's flat again. How many dojis can the market chalk up until something gives?

Potential market-moving bad news turns out to be duds (e.g. a really, really bad GDP number, bankruptcy filing of a major auto company) and the indices just sit. Seeing this action (I should say non-action), every day sees a new analyst, pundit making a pronouncement that this may really be a start of the new bull market. The most recent is Abby Joseph Cohen of Goldman Sachs, saying she expects the broad stock market to finish higher this year, with the U.S. economy "at worst" experiencing a mild recession. (That sounds awfully familiar. I thought she stopped making predictions given her fantastic calls in 2007 and 2008.)

Weighing against this strangely positive mood, I think, is the bond market, which has been crowded with Treasuries the government must sell to fund the government operation. Next week is no different. US Treasury has to sell $155 billion worth of Treasury bills, notes, and bonds, all of that, in one week. Here's the schedule (data taken from Treasury Department's official announcements):

• Monday May 4: 13-week bill, $30 billion
• Monday May 4: 26-week bill, $28 billion
• Tuesday May 5: 52-week bill, $26 billion
• Tuesday May 5: 3-year note, $35 billion
• Wednesday May 6: 10-year note, $22 billion
• Thursday May 7: 30-year bond, $14 billion
  
  Total for the week: $155 billion

Oh, by the way... This one-week amount is about 35% of the debt that the Japanese government wants to sell this fiscal year.

... And Treasury will wait until Thursday to release the result of the "stress test".

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