Sunday, May 6, 2018

Coming Treasury Auctions Will Be Telling

We've made the case from the get-go that a serious risk (one of many) of inciting trade disputes is the potential to notably hurt the demand for U.S. treasury debt -- at a time (tax cuts and spending increases) when it's needed most.

Looks like a legitimate concern, per the following from Bloomberg this morning:  emphasis mine...
"The extent of foreign demand will be a focus amid worries that some of the biggest U.S. creditors may be stepping aside, just as the Treasury is ramping up sales and as the Federal Reserve trims its balance sheet.
At last month’s 10-year auction, foreign and international investors purchased just 12.8 percent, the lowest share since September, Treasury data show. It also marked their smallest take down at an April offering of the maturity in four years. Overseas buyers took a similar slice of the 30-year sale, the least since January."
Next week the treasury will issue $7 billion more debt than it did during the equivalent round of funding last quarter, it has to given the growing budget deficit. If the buying pool is indeed falling, all else equal, interest rates will indeed be rising. This (along with other bullish factors) explains our present aversion to bonds and interest rate-sensitive equities...

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