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Opinion
Robert Burgess

The Bond Market Just Sent a Disturbing Message

A crummy Treasury auction leads market commentary. Plus, trade bets, oil advances and more.

What if the Treasury had a bond auction and nobody came?

What if the Treasury had a bond auction and nobody came?

Photographer: Andrew Harrer/Bloomberg

Global markets got a glimpse of the unthinkable Wednesday when the U.S. held a key bond auction. The $27 billion sale of 10-year notes – the world’s benchmark securities  – didn’t go well at all. It wasn’t a failure; that would have triggered no less than an Armageddon-type event on par with the financial crisis. But the poor demand sure sparked a lot of questions, including whether this was a sign that investors finally had enough of the government’s profligate spending and borrowing.

Investors submitted bids for 2.17 times the amount offered by the Treasury Department, the lowest so-called bid-to-cover ratio since March 2009, hammering home the notion that demand for U.S. bonds isn’t limitless with the government on track to borrow $1 trillion to finance a budget deficit by the same amount. Total U.S. debt is now above $22 trillion, up from less than $10 trillion before the financial crisis. To be sure, it’s too early to say the bond vigilantes have returned, but it’s notable that bid-to-cover ratios and international participation at the auctions has been declining for a few years now. Foreign holders own about 40 percent of the marketable U.S. debt outstanding, down from more than 50 percent pre-crisis. “I wish the buyers could talk to see what it was about this yield that was so unattractive,” Bleakley Financial Group chief investment officer Peter Boockvar wrote in a note to clients. Maybe it was because yields near the lowest since late 2017 “just wasn’t attractive. Maybe buyers aren’t as sanguine as many others that inflation is so benign. Maybe it’s in response to exploding U.S. debts and deficits. Maybe it’s because the cost of hedging on the part of overseas investors has made buying longer-term U.S. Treasuries on a hedged basis just not worth it.