10-year Treasury yield raises to 4% due to sloppy auction

June 10, 2009 by · Leave a Comment
Filed under: Currency News 

It can not be a good sign when fixed income trader called the Treasury auction “sloppy”.  With the 10-year at 4%, we can expect that the longer portion of the “yield curve” is going to steepen.  This does not bode well for future interest rate which will need to go much higher to match future inflation expectations.  With the amount of money that has been pumped into our economy through our banking system and with interests at historic lows, inflation is the obvious policy of the day.

News (Reuters):

U.S. Treasury prices fell on Wednesday, sending benchmark yields to 4.0 percent for the first time in eight months, after an auction of 10-year notes heightened concerns over the burgeoning U.S. budget deficit.

It was the first test of the government’s long-term borrowing ability since investors began to wonder last month whether the United States’ prized AAA credit rating may be living on borrowed time.

Overall demand and a key proxy for foreign interest were both robust, but the high yield at the auction was above market expectations.

This “tail,” as it is known in the market, showed investors wanted the government to pay a premium to get the bonds sold and tipped the balance for a negative interpretation of the sale.

“I thought the auction was sloppy,” said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson & Co. in Seattle.

“At this point the path of least resistance is down,” Hurley added.

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