Have Bond Investors Gone Completely Insane?
The debt market continues to slide, yet traders are clamoring for Treasuries. What gives?
Don’t count out the bond market just yet.
Photographer: Al Bello/Allsport/Getty Images
Bond investors must be gluttons for punishment. Last year was one of the worst on record for the Bloomberg U.S. Treasury Index, which fell 1.89% as yields shot higher. Factor in inflation of 7%, and the real decline was closer to 9%. This year is even worse, with the index already down 3% through Tuesday. And yet, like an aging champion boxer who doesn’t know when to quit, traders keep answering the bell.
That was evident in today’s government auction of $37 billion in 10-year notes, which was stellar no matter how you look at it. In a sign of big demand, the securities drew a yield of 1.904%, below the 1.926% level that they were trading at in the so-called when-issued market just before the auction. Not only that, but investors submitted bids for 2.68 times the amount offered, a level exceeded only two other times for that maturity going back to early 2017. (The securities are auctioned monthly.) Want more proof? Indirect bidders, a group associated with foreign central banks and other big institutions, were awarded 77.6% of the securities offered, a record in data going back to 2003.