Treasury Auction - Nobody Came: "Great T-Bill Massacre"

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Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Tue Jul 03, 2018 10:33 am

Bloomberg wrote:Where Were You During the Great T-Bill Massacre of 2018?

Nothing scares big investors more than the notion that the U.S. could hold a bond auction and nobody showed up. After all, Treasuries are the world’s safest investment, backed by the full faith and credit of the U.S. The securities, especially Treasury bills, are as good as cash. But on Monday, investors — and the Treasury Department — got a whiff of what disaster could look like if investors decided U.S. debt wasn’t worth the paper it was printed on.

At the government’s weekly auction of four-week bills, which was moved up a day to account for the Fourth of July holiday, investors placed bids for 2.45 times the $35 billion amount offered. That’s the lowest so-called bid-to-cover ratio in a decade and far below this year’s average of 2.99 times.
https://www.bloomberg.com/view/articles ... re-of-2018
Reuters wrote:U.S. bill auctions weakest since 2008 ahead of holiday

NEW YORK (Reuters) - Investors gave the cold shoulder to $125 billion of U.S. Treasury bills for sale on Monday with bidding for some issues at its lowest in nearly a decade.

...

It also auctioned $35 billion of one-month bills at an interest rate of 1.860 percent. The bid-to-cover ratio for the latest one-month bill supply was 2.45, which was the weakest since July 29, 2008.
https://www.reuters.com/article/us-usa- ... SKBN1JS2FH
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by greg24 » Tue Jul 03, 2018 10:39 am

How much was this affected by moving it forward a day?

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by GAAP » Tue Jul 03, 2018 10:44 am

“The holiday week and the simultaneous Brazil-Mexico World Cup match might have had a negative impact on auction participation,” Jefferies & Co. money market strategist Tom Simons wrote in a research note.
Really?! The World Cup can affect Treasury auctions?

I never did have much faith in Treasuries as "the world's safest investment" -- I have even less now...

One more reason to accelerate Roth Conversions under the current tax law.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by pokebowl » Tue Jul 03, 2018 10:52 am

Where Were You During the Great T-Bill Massacre of 2018?
Same place as when I received the inbound ICBM alert in Hawaii, sleeping. Didn't hear jets scrambling then and didn't hear any scrambling for this "T-Bill Massacre"...so I assume the world is not ending? Do I get to sleep in?

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by alter » Tue Jul 03, 2018 10:52 am

These days, rather than a currency backed by the full faith of the USA, people prefer to have currencies that are backed by the full faith of online hackers and scammers (bitcoin, etc)

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Tue Jul 03, 2018 10:53 am

This events happen but are temporary in nature. If you believe in current account fund accounting, when the public sector is in deficit then the private sector is in surplus. There are economists who say that the US Public Debt is equal to national savings. There is spirited debate over this. But if that is true then by definition there will be buyers for the debt. The private sector surplus has to go somewhere.

Also we run trade deficits. That means certain countries like China, Japan, and Germany have a surplus of dollars. If you want to store dollars and want some interest on them, then you will buy treasuries to store those dollars. Pretty much, trade deficits create demand for US Treasuries.

You also have the Federal Reserve Bank which can be the buyer of last resort by buying Treasuries. Debt issuance also has a role in the creation of money.

It was interesting that when the US Government ran huge deficits in the aftermath of the 2008-2009 financial crisis that the national savings rate went up, that US Corporations were flush with cash, and that bank reserves held at the Fed swelled.

What I am saying is pretty controversial as it is counterintuitive. Some folks here probably think I am utterly nuts. The standard textbook explanations don't quite explain everything.

So far, I don't see much evidence that Uncle Sam cannot find buyers for its debt.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Tue Jul 03, 2018 10:53 am

GAAP wrote:
Tue Jul 03, 2018 10:44 am
“The holiday week and the simultaneous Brazil-Mexico World Cup match might have had a negative impact on auction participation,” Jefferies & Co. money market strategist Tom Simons wrote in a research note.
Really?! The World Cup can affect Treasury auctions?

I never did have much faith in Treasuries as "the world's safest investment" -- I have even less now...

One more reason to accelerate Roth Conversions under the current tax law.
There's a remark about China in the Reuters article but I chose not to mention it because of possible "political" aspects.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by MinhN » Tue Jul 03, 2018 10:57 am

There may be a point when the US can no longer ask the world to pay for its excesses. My outlook on US debt is not positive.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by GAAP » Tue Jul 03, 2018 10:59 am

pokebowl wrote:
Tue Jul 03, 2018 10:52 am
Where Were You During the Great T-Bill Massacre of 2018?
Same place as when I received the inbound ICBM alert in Hawaii, sleeping. Didn't hear jets scrambling then and didn't hear any scrambling for this "T-Bill Massacre"...so I assume the world is not ending? Do I get to sleep in?
Only if you're sleep-typing...

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by GAAP » Tue Jul 03, 2018 11:13 am

nedsaid wrote:
Tue Jul 03, 2018 10:53 am
This events happen but are temporary in nature. If you believe in current account fund accounting, when the public sector is in deficit then the private sector is in surplus. There are economists who say that the US Public Debt is equal to national savings. There is spirited debate over this. But if that is true then by definition there will be buyers for the debt. The private sector surplus has to go somewhere.
Certainly, the money has go somewhere (leaving out the whole CDO stuff that isn't really money). But at some point, there are likely to be better choices.
nedsaid wrote:
Tue Jul 03, 2018 10:53 am
Also we run trade deficits. That means certain countries like China, Japan, and Germany have a surplus of dollars. If you want to store dollars and want some interest on them, then you will buy treasuries to store those dollars. Pretty much, trade deficits create demand for US Treasuries.
Very true -- especially when other currencies are pegged to the dollar.
nedsaid wrote:
Tue Jul 03, 2018 10:53 am
You also have the Federal Reserve Bank which can be the buyer of last resort by buying Treasuries. Debt issuance also has a role in the creation of money.
Ok, but how many here would believe the financials of a corporation that sold to itself?
nedsaid wrote:
Tue Jul 03, 2018 10:53 am
What I am saying is pretty controversial as it is counterintuitive.
It's certainly not popular -- not so sure it's controversial. The use of debt, as opposed to the abuse of debt, is counterintuitive to most people. The transition between the two can be difficult to see.
nedsaid wrote:
Tue Jul 03, 2018 10:53 am
Some folks here probably think I am utterly nuts. The standard textbook explanations don't quite explain everything.
No comment... :twisted:
nedsaid wrote:
Tue Jul 03, 2018 10:53 am
So far, I don't see much evidence that Uncle Sam cannot find buyers for its debt
I hope you're right -- but I'm not counting on it.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by AlohaJoe » Tue Jul 03, 2018 11:19 am

What a world we live in where "nobody came" means "over twice as many came as were invited to the party".

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Tyler Aspect » Tue Jul 03, 2018 11:19 am

Let's not panic on this yet. We need to see if the low auction subscription is a one time fluke, or a persistent trend.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Church Lady » Tue Jul 03, 2018 11:19 am

investors placed bids for 2.45 times the $35 billion amount offered.
So that's a 'massacre'. Yawn, yawn. Wake me up when the bid to cover ratio falls below 1.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by grok87 » Tue Jul 03, 2018 11:20 am

Doc wrote:
Tue Jul 03, 2018 10:33 am
Bloomberg wrote:Where Were You During the Great T-Bill Massacre of 2018?

Nothing scares big investors more than the notion that the U.S. could hold a bond auction and nobody showed up. After all, Treasuries are the world’s safest investment, backed by the full faith and credit of the U.S. The securities, especially Treasury bills, are as good as cash. But on Monday, investors — and the Treasury Department — got a whiff of what disaster could look like if investors decided U.S. debt wasn’t worth the paper it was printed on.

At the government’s weekly auction of four-week bills, which was moved up a day to account for the Fourth of July holiday, investors placed bids for 2.45 times the $35 billion amount offered. That’s the lowest so-called bid-to-cover ratio in a decade and far below this year’s average of 2.99 times.
https://www.bloomberg.com/view/articles ... re-of-2018
Reuters wrote:U.S. bill auctions weakest since 2008 ahead of holiday

NEW YORK (Reuters) - Investors gave the cold shoulder to $125 billion of U.S. Treasury bills for sale on Monday with bidding for some issues at its lowest in nearly a decade.

...

It also auctioned $35 billion of one-month bills at an interest rate of 1.860 percent. The bid-to-cover ratio for the latest one-month bill supply was 2.45, which was the weakest since July 29, 2008.
https://www.reuters.com/article/us-usa- ... SKBN1JS2FH
Thanks Doc.
Spread between 30 yr treasuries and 3 month bills now just 1%
https://fred.stlouisfed.org/graph/?g=knI
1.97% vs 2.97%
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by willthrill81 » Tue Jul 03, 2018 11:28 am

nedsaid wrote:
Tue Jul 03, 2018 10:53 am
This events happen but are temporary in nature. If you believe in current account fund accounting, when the public sector is in deficit then the private sector is in surplus. There are economists who say that the US Public Debt is equal to national savings. There is spirited debate over this. But if that is true then by definition there will be buyers for the debt. The private sector surplus has to go somewhere.

Also we run trade deficits. That means certain countries like China, Japan, and Germany have a surplus of dollars. If you want to store dollars and want some interest on them, then you will buy treasuries to store those dollars. Pretty much, trade deficits create demand for US Treasuries.

You also have the Federal Reserve Bank which can be the buyer of last resort by buying Treasuries. Debt issuance also has a role in the creation of money.

It was interesting that when the US Government ran huge deficits in the aftermath of the 2008-2009 financial crisis that the national savings rate went up, that US Corporations were flush with cash, and that bank reserves held at the Fed swelled.

What I am saying is pretty controversial as it is counterintuitive. Some folks here probably think I am utterly nuts. The standard textbook explanations don't quite explain everything.

So far, I don't see much evidence that Uncle Sam cannot find buyers for its debt.
David Stein of the "Money for the Rest of Us" podcast agrees with you. Public deficits lead to private surpluses and vice versa.

Where people, including me in the past, very often get mixed up in their thinking is that they believe that national governments must run their finances like households (i.e. you can only run a deficit so long in a household before it all caves in). That's simply false; governments can create their own currency and literally pay off their own debt. This isn't political or really even controversial. The 'trick' is keeping inflation in check; the ability to do this is constrained by the productivity of the private sector. As long as the private sector is healthy and strong, it seems that there may be no end to deficit spending nor limit on how large national debts can grow to.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Tue Jul 03, 2018 11:36 am

I remember many years ago, I heard an economist speak who was worried about the high deficits that the Reagan administration was running up during the 1980's. Pretty much hearing how the U.S. could go bankrupt and how this was going to hurt the dollar. Stuff like that. At that time, the US was running deficits, the economy was strong, and yet interest rates were falling. The Brits, under Margaret Thatcher were running surpluses and yet their interest rates were rising. Being a smart-aleck twenty-something, I asked the economist why this was so? Wouldn't you expect interest rates to be rising in the US and falling in the UK? He had no answer and I gave him credit for saying he didn't know.

This gave me a suspicion that the standard explanations didn't quite work. In a strong economy, you would expect that relatively large Federal deficits would crowd out private borrowing and would thus restrict the economy. The crowding out effect just never seems to happen. Reagan had a robust economy, ran historically high deficits, and interest rates fell. Obama had a slow recovery in the aftermath of the financial crisis, ran historically high deficits, and interest rates fell.

I don't mean to say that if you want interest rates to fall that all you have to do is run high deficits. Certainly, there are other factors at work here. You would have expected a crowding out effect during the relatively strong Reagan economy but it didn't happen. One thing that helped Reagan was that energy prices fell and that was a big factor in all of this. During Obama's administration, private loan demand was relatively weak so it was no surprise there was no crowding out effect there. The big increases in Federal Debt pretty much cancelled out the debt destruction in the private sector, this helped keep money supply from collapsing. In our economy, debt is money and our currency is debt based.

Pretty much, I am saying that people ought to have perspective on this. The deficit numbers are large but so is the size of the economy and the size of the debt. A trillion dollar deficit adds not quite 5% to the debt. If the economy grows at 3% real and has inflation of 2%, things don't look so out of whack to me. The numbers are big, difficult to comprehend, but that doesn't mean that things are out of control.

Do I believe that deficits don't matter? Actually I believe they do. At some point, you have to worry about inflation pressures and effects upon the dollar. There is also the private banking system, which through the multiplier effect probably has a bigger effect on money creation than Federal debt. The Fed can encourage or discourage private lending, the biggest lever being short term interest rates.

What I am trying to say is that this is a complex topic. Many things at play here. I would not panic over a one day tepid treasury market. As one poster said, maybe a lot of traders were watching the world cup. I wouldn't read too much into short term events like this.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by grok87 » Tue Jul 03, 2018 11:38 am

willthrill81 wrote:
Tue Jul 03, 2018 11:28 am
nedsaid wrote:
Tue Jul 03, 2018 10:53 am
This events happen but are temporary in nature. If you believe in current account fund accounting, when the public sector is in deficit then the private sector is in surplus. There are economists who say that the US Public Debt is equal to national savings. There is spirited debate over this. But if that is true then by definition there will be buyers for the debt. The private sector surplus has to go somewhere.

Also we run trade deficits. That means certain countries like China, Japan, and Germany have a surplus of dollars. If you want to store dollars and want some interest on them, then you will buy treasuries to store those dollars. Pretty much, trade deficits create demand for US Treasuries.

You also have the Federal Reserve Bank which can be the buyer of last resort by buying Treasuries. Debt issuance also has a role in the creation of money.

It was interesting that when the US Government ran huge deficits in the aftermath of the 2008-2009 financial crisis that the national savings rate went up, that US Corporations were flush with cash, and that bank reserves held at the Fed swelled.

What I am saying is pretty controversial as it is counterintuitive. Some folks here probably think I am utterly nuts. The standard textbook explanations don't quite explain everything.

So far, I don't see much evidence that Uncle Sam cannot find buyers for its debt.
David Stein of the "Money for the Rest of Us" podcast agrees with you. Public deficits lead to private surpluses and vice versa.

Where people, including me in the past, very often get mixed up in their thinking is that they believe that national governments must run their finances like households (i.e. you can only run a deficit so long in a household before it all caves in). That's simply false; governments can create their own currency and literally pay off their own debt. This isn't political or really even controversial. The 'trick' is keeping inflation in check; the ability to do this is constrained by the productivity of the private sector. As long as the private sector is healthy and strong, it seems that there may be no end to deficit spending nor limit on how large national debts can grow to.
Agree but tips would be the exception.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by willthrill81 » Tue Jul 03, 2018 11:42 am

grok87 wrote:
Tue Jul 03, 2018 11:38 am
Agree but tips would be the exception.
Would you elaborate on that?
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by GAAP » Tue Jul 03, 2018 11:44 am

I've actually been wondering lately at what point it no longer makes sense to invest in bonds at all. It seems to me that if the returns from nominal bonds drop low enough, then only inflation-protected bonds make sense. If inflation-protected bonds drop much, why not just use cash?

The recent thread on long-term historical returns showed a marked downward trend to under 2% real today. The CSRI yearbook agrees, showing 1.8% real internationally and 2.0% in the USA since 1900. There isn't much room left...

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by livesoft » Tue Jul 03, 2018 11:45 am

Ooops, I forgot to put in my normal $19 billion order for T-bills this past weekend. Sorry about that.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Tue Jul 03, 2018 11:46 am

willthrill81 wrote:
Tue Jul 03, 2018 11:28 am

David Stein of the "Money for the Rest of Us" podcast agrees with you. Public deficits lead to private surpluses and vice versa.

Where people, including me in the past, very often get mixed up in their thinking is that they believe that national governments must run their finances like households (i.e. you can only run a deficit so long in a household before it all caves in). That's simply false; governments can create their own currency and literally pay off their own debt. This isn't political or really even controversial. The 'trick' is keeping inflation in check; the ability to do this is constrained by the productivity of the private sector. As long as the private sector is healthy and strong, it seems that there may be no end to deficit spending nor limit on how large national debts can grow to.
This is a good summary of what I am trying to say. Warren Buffett has made comments that the US Government ought to have a AAAA credit rating rather than the highest AAA rating. Our Federal debt is denominated in our own currency. The US Government can create both debt and currency at will, however, as you said, inflation is the check on all of this. This is why deficits do matter, the restraint on Federal deficit spending are potential inflationary pressures. Pretty much, you can pay down the debt by creating inflation. A good argument can be made that debasing the currency through inflation is a technical form of default. I don't worry about the ability of the US Government to meet debt payments.

Another restraint has to do with the interest payments as a percentage of the Federal Budget. This is also something to watch.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by david1082b » Tue Jul 03, 2018 11:53 am

The MSM seems to have a thing for scary stories about Treasury auctions:

March this year:
Bond Traders Haven't Been So Leery of U.S. Auctions Since the Crisis https://www.bloomberg.com/news/articles ... nce-crisis
2015:
Indirect Bidders Shun the 26-Week Treasury Bills Auction https://finance.yahoo.com/news/indirect ... 50530.html
June 2013:
This week, other government auctions for shorter-dated Treasuries have produced lackluster results. Demand for the 10-year U.S. Treasury note, proxied by the bid-to-cover ratio, fell to its lowest level in 10 months at yesterday's auction of 10-year notes. http://www.businessinsider.com/30-year- ... 013-6?IR=T


There have been countless others I remember over the last ten years, it's a running joke basically. Clickbait and nothing more.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by bhsince87 » Tue Jul 03, 2018 12:03 pm

Another way to describe that is to say "The Market" wanted to buy $85 billion worth of notes. The Government only wanted to sell $35 Billion.

It's a little more complicated than that, in that weaker demand can drive up rates.

But in other fields, anything over 2.0 is considered a successful auction. It's hard to see how this is a slaughter.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by bberris » Tue Jul 03, 2018 12:03 pm

So if I am the guy selling those "better choices", now I have those dollars that the prudent guy (who doesn't like US govt debt) gave me in payment. I guess I now have to look for even better choices.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by FIREchief » Tue Jul 03, 2018 12:39 pm

nedsaid wrote:
Tue Jul 03, 2018 10:53 am
This events happen but are temporary in nature. If you believe in current account fund accounting, when the public sector is in deficit then the private sector is in surplus. There are economists who say that the US Public Debt is equal to national savings. There is spirited debate over this. But if that is true then by definition there will be buyers for the debt. The private sector surplus has to go somewhere.

Also we run trade deficits. That means certain countries like China, Japan, and Germany have a surplus of dollars. If you want to store dollars and want some interest on them, then you will buy treasuries to store those dollars. Pretty much, trade deficits create demand for US Treasuries.

You also have the Federal Reserve Bank which can be the buyer of last resort by buying Treasuries. Debt issuance also has a role in the creation of money.

It was interesting that when the US Government ran huge deficits in the aftermath of the 2008-2009 financial crisis that the national savings rate went up, that US Corporations were flush with cash, and that bank reserves held at the Fed swelled.

What I am saying is pretty controversial as it is counterintuitive. Some folks here probably think I am utterly nuts. The standard textbook explanations don't quite explain everything.

So far, I don't see much evidence that Uncle Sam cannot find buyers for its debt.
Great post! Thank you.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by moehoward » Tue Jul 03, 2018 12:42 pm

Interesting article. I've been purchasing 4 week notes for a coupe of weeks now.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by VaR » Tue Jul 03, 2018 12:48 pm

Is it a slow news day? It seems like something worth noting and checking on at next week's auction but not something worth a headline. OTOH, if this is the start of a trend it does seem worth a headline for the "you heard it here first, folks" factor.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by whodidntante » Tue Jul 03, 2018 12:49 pm

Part of me is rooting for an actual shortage of buyers just to watch what happens. Does the Fed step in to buy with created money at that point?

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by grok87 » Tue Jul 03, 2018 1:04 pm

willthrill81 wrote:
Tue Jul 03, 2018 11:42 am
grok87 wrote:
Tue Jul 03, 2018 11:38 am
Agree but tips would be the exception.
Would you elaborate on that?
Sure.

Well of course anything can happen. But conventional wisdom for different debt scenarios is as follows

1) fixed nominal local currnecy debt. A country can just print money to pay this off

2) foreign currency debt. If a country tries to print money to pay this off its currency will devalue and it will enter a death spiral and not be able to pay it off and may eventually default

3) tips debt: if a country tries to print money to pay it off its inflation rate will spike, the tips debt service will spike, it will enter a death spiral and not be able to pay it off and may eventually default.
Last edited by grok87 on Tue Jul 03, 2018 1:29 pm, edited 1 time in total.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by willthrill81 » Tue Jul 03, 2018 1:15 pm

grok87 wrote:
Tue Jul 03, 2018 1:04 pm
willthrill81 wrote:
Tue Jul 03, 2018 11:42 am
grok87 wrote:
Tue Jul 03, 2018 11:38 am
Agree but tips would be the exception.
Would you elaborate on that?
Sure.

Well of course anything can happen. But conventional wisdom for different debt scenarios is as follows

1) fixed nominal local currnecy debt. A country can just print money to pay this off

2) foreign currency debt. If a country tries to print money to pay this off its currency will devalue and it will enter a death spiral and not be all to pay it off and may eventually default

3) tips debt: if a country tries to print money to pay it off its inflation rate will spike, the tips debt service will spike, it will enter a death spiral and not be able to pay it off and may eventually default.
Yes, that's true. But it also depends on much of #2 and #3 they are trying to pay off.

For the reason you've outlined, I've wondered whether governments will continue to offer TIPS and the like well into the future.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by goblue100 » Tue Jul 03, 2018 1:15 pm

Doesn't this help explain the lower demand?
http://www.businessinsider.com/fed-plan ... eat-2018-3
During QE, the Fed acquired Treasury securities and mortgage-backed securities (MBS) guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. During the QE-Unwind, the Fed is shedding those securities. According to its plan, announced last September, the Fed would reduce its holdings of Treasuries and MBS by no more than:
$30 billion a month in Q2 2018
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by David Jay » Tue Jul 03, 2018 1:23 pm

livesoft wrote:
Tue Jul 03, 2018 11:45 am
Ooops, I forgot to put in my normal $19 billion order for T-bills this past weekend. Sorry about that.
Wow!

I’m jealous, I have a hard time scraping together 19 million for the T-bill auction.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Tue Jul 03, 2018 1:24 pm

goblue100 wrote:
Tue Jul 03, 2018 1:15 pm
Doesn't this help explain the lower demand?
http://www.businessinsider.com/fed-plan ... eat-2018-3
During QE, the Fed acquired Treasury securities and mortgage-backed securities (MBS) guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. During the QE-Unwind, the Fed is shedding those securities. According to its plan, announced last September, the Fed would reduce its holdings of Treasuries and MBS by no more than:
$30 billion a month in Q2 2018
No, the the subnormal amount of bid-to-cover ratio was a "one off" event (at least for now). The offering amount of new issues is a separate consideration about yields as others have alluded to. The offering amount itself not the bid-to cover ratio is what your reference is addressing.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Tue Jul 03, 2018 1:31 pm

David Jay wrote:
Tue Jul 03, 2018 1:23 pm
I’m jealous, I have a hard time scraping together 19 million for the T-bill auction.
PM me, maybe we can work something out. :beer
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by staythecourse » Tue Jul 03, 2018 1:36 pm

Sounds like a slow news week.

The fact remains no matter what folks think of U.S. treasuries it is still considered the cleanest of all the dirty shirts. The line spoken by Mr. Gross several years ago and is pretty spot one (despite many of his calls not being spot on).

When the U.S. was downgraded on their credit rating back in ?2011 or so everyone thought the sky was going to fall. Well after several VOLATILE weeks (daily movements of 5-8%) everything came back to normal. It is naive to think one aspect would/ could change financial markets outside of U.S. political system shifting from capitalism to anything else.

Good luck.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by JoMoney » Tue Jul 03, 2018 1:46 pm

Sounds like the late 1950's when interest rates started to rise. Here's some related Time magazine snips I took awhile back when looking at this period:

Code: Select all

Monday, Dec. 03, 1956
Will the tight money market get tighter still? Last week, Wall Street apparently feared that it would, and that worry, plus year-end tax selling and the Suez crisis (see below), sent stocks on the Dow-Jones industrial average edging down to 472.56, nearly 50 points off the peak last April. The tip-off to Wall Street was the U.S. Treasury's action: it had to offer an interest rate of 3.043% to sell $1.6 billion worth of 90-day bills, a rate slightly higher than the Federal Reserve's 3% rediscount rate.
Read more: http://content.time.com/time/magazine/article/0,9171,808683,00.html#ixzz2e6wEV4Es

Monday, Feb. 16, 1959
The U.S. Treasury offered $9.1 billion in new securities last week to private holders of maturing debt and got a shock. It had hoped to persuade most of the holders of maturing issues, bearing 1⅞% and 2½% interest rates, to trade them in for new Government securities paying 3¾% and 4%. Instead, owners of more than 20% of the old issues demanded to be paid off in cash, the biggest such demand in six months. To help make up the difference, the Treasury must go to the public this week with a $1.5 billion emergency issue.
The failure of the latest debt...
Read more: http://content.time.com/time/magazine/article/0,9171,894216,00.html#ixzz2e6mLJbc4

Monday, May 11, 1959
The sick Government-bond market last week had its worst sinking spell. As prices of old issues hit new lows, their yields rose as high as 4.28%. exceeding the 4¼% ceiling on coupon rates the Government can set on new long-term bonds. Not since the hectic, tight-money days of early 1932 have yields risen so high. The sinking spell came at a particularly bad time for Treasury Secretary Robert B. Anderson; he needed $5.3 billion to carry the Government through June 30.
Read more: http://content.time.com/time/magazine/article/0,9171,865850,00.html#ixzz2e6tTHslo

Monday, May 25, 1959
When money rates are rising, even well-priced bond issues often meet a cool reception because buyers are waiting for still higher rates. Last week the U.S. found buyers scarce for its latest issue. To holders of $1.8 billion in maturing issues, the Treasury offered to exchange a short-term (one year), attractively priced (4.05%) issue. Instead of taking the new issue, 30% of the noteholders asked for $547 million in cash, highest attrition rate since the record 32% of May 1955.
Read more: http://content.time.com/time/magazine/article/0,9171,865933,00.html#ixzz2e6xB6rGE

Monday, June 15, 1959
The President of the richest nation on earth last week publicly confessed what everyone on Wall Street has known for months. The U.S. Treasury cannot sell its long-term bonds. This week Congress got the President's proposal to tide the Treasury over its crisis. In a special message Ike 1) recommended an end to the statutory ceiling on interest rates both for savings bonds (now pegged at 3.26%) and long-term Treasury securities (pegged at 4.25%) so that they can compete in the open market, and 2) asked for a ½% boost in the interest rate 
Read more: http://content.time.com/time/magazine/article/0,9171,892700,00.html#ixzz2e6nE4PEn

Monday, Oct. 12, 1959
The U.S. Treasury Department, which has had trouble raising the cash it needs, last week found a way to tap some new money. It issued $2 billion in four-year, ten-month notes at an interest rate of 5%, the highest since the tight-money days of 1929. The rate was so attractive that an avalanche of subscriptions poured in from small investors. Said New York's Manufacturers Trust: "It was fantastic. Everyone in the Government bond department was too busy to even go out for lunch.
Read more: http://content.time.com/time/magazine/article/0,9171,864065,00.html#ixzz2e6hFEUKB

Friday, Apr. 14, 1967
What the Johnson Administration wants, the Federal Reserve Board has not always delivered—at least not while the economy was booming. In late 1965, when the President wanted an easy-money policy, the Fed seemed to go out of its way to tighten things up.
Read more: http://content.time.com/time/magazine/article/0,9171,836980,00.html#ixzz2e6lI8vhL

Monday, Sept. 27, 1971
When it comes to buying U.S. savings bonds, patriotism has not paid —until recently. One of the Government's highest economic policymakers was asked not long ago by the Treasury to urge the public to buy bonds; he refused, on grounds that the 5.5% interest rate did not keep up with inflation. In sum, bond buyers actually lost money. Realizing this, Americans long redeemed their old bonds faster than they bought new ones.
Now, in an unexpected turnabout, the Treasury Department reports that savings bonds are selling better than they have since 1945.
Read more: http://content.time.com/time/magazine/article/0,9171,910065,00.html#ixzz2e6hrRtWf

Monday, June 04, 1979
Federal interest rate ceilings limit the payout on their passbook accounts to 5% in commercial banks and 5.25% in savings institutions, which is less than half the current rate of inflation—and much less than a higher-roller gets for investing $ 1,000 or more in a money market mutual fund. The small saver's squeeze is summed up in a Citibank anti-ceiling advertisement: "Deposit $500 with us today and we'll give you back $475 next year."
Read more: http://content.time.com/time/magazine/article/0,9171,946264,00.html#ixzz2e6XFsIDJ

Monday, June 08, 1981
20% annual interest—Trust Deeds Safely Secured... 18% United States Government Guaranteed Securities ... $3,000 earns 15.086% per year for 26 weeks ... 15% interest on as little as $1,000. No risks. No penalties. No fees.
Read more: http://content.time.com/time/magazine/article/0,9171,922571,00.html#ixzz2e6Ya28pa

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Angst » Tue Jul 03, 2018 2:00 pm

JoMoney wrote:
Tue Jul 03, 2018 1:46 pm
Sounds like the late 1950's when interest rates started to rise. Here's some related Time magazine snips I took awhile back when looking at this period:

Code: Select all

Monday, Dec. 03, 1956
Will the tight money market get tighter still? Last week, Wall Street apparently feared that it would, and that worry, plus year-end tax selling and the Suez crisis (see below), sent stocks on the Dow-Jones industrial average edging down to 472.56, nearly 50 points off the peak last April. The tip-off to Wall Street was the U.S. Treasury's action: it had to offer an interest rate of 3.043% to sell $1.6 billion worth of 90-day bills, a rate slightly higher than the Federal Reserve's 3% rediscount rate.
Read more: http://content.time.com/time/magazine/article/0,9171,808683,00.html#ixzz2e6wEV4Es

Monday, Feb. 16, 1959
The U.S. Treasury offered $9.1 billion in new securities last week to private holders of maturing debt and got a shock. It had hoped to persuade most of the holders of maturing issues, bearing 1⅞% and 2½% interest rates, to trade them in for new Government securities paying 3¾% and 4%. Instead, owners of more than 20% of the old issues demanded to be paid off in cash, the biggest such demand in six months. To help make up the difference, the Treasury must go to the public this week with a $1.5 billion emergency issue.
The failure of the latest debt...
Read more: http://content.time.com/time/magazine/article/0,9171,894216,00.html#ixzz2e6mLJbc4

Monday, May 11, 1959
The sick Government-bond market last week had its worst sinking spell. As prices of old issues hit new lows, their yields rose as high as 4.28%. exceeding the 4¼% ceiling on coupon rates the Government can set on new long-term bonds. Not since the hectic, tight-money days of early 1932 have yields risen so high. The sinking spell came at a particularly bad time for Treasury Secretary Robert B. Anderson; he needed $5.3 billion to carry the Government through June 30.
Read more: http://content.time.com/time/magazine/article/0,9171,865850,00.html#ixzz2e6tTHslo

Monday, May 25, 1959
When money rates are rising, even well-priced bond issues often meet a cool reception because buyers are waiting for still higher rates. Last week the U.S. found buyers scarce for its latest issue. To holders of $1.8 billion in maturing issues, the Treasury offered to exchange a short-term (one year), attractively priced (4.05%) issue. Instead of taking the new issue, 30% of the noteholders asked for $547 million in cash, highest attrition rate since the record 32% of May 1955.
Read more: http://content.time.com/time/magazine/article/0,9171,865933,00.html#ixzz2e6xB6rGE

Monday, June 15, 1959
The President of the richest nation on earth last week publicly confessed what everyone on Wall Street has known for months. The U.S. Treasury cannot sell its long-term bonds. This week Congress got the President's proposal to tide the Treasury over its crisis. In a special message Ike 1) recommended an end to the statutory ceiling on interest rates both for savings bonds (now pegged at 3.26%) and long-term Treasury securities (pegged at 4.25%) so that they can compete in the open market, and 2) asked for a ½% boost in the interest rate 
Read more: http://content.time.com/time/magazine/article/0,9171,892700,00.html#ixzz2e6nE4PEn

Monday, Oct. 12, 1959
The U.S. Treasury Department, which has had trouble raising the cash it needs, last week found a way to tap some new money. It issued $2 billion in four-year, ten-month notes at an interest rate of 5%, the highest since the tight-money days of 1929. The rate was so attractive that an avalanche of subscriptions poured in from small investors. Said New York's Manufacturers Trust: "It was fantastic. Everyone in the Government bond department was too busy to even go out for lunch.
Read more: http://content.time.com/time/magazine/article/0,9171,864065,00.html#ixzz2e6hFEUKB

Friday, Apr. 14, 1967
What the Johnson Administration wants, the Federal Reserve Board has not always delivered—at least not while the economy was booming. In late 1965, when the President wanted an easy-money policy, the Fed seemed to go out of its way to tighten things up.
Read more: http://content.time.com/time/magazine/article/0,9171,836980,00.html#ixzz2e6lI8vhL

Monday, Sept. 27, 1971
When it comes to buying U.S. savings bonds, patriotism has not paid —until recently. One of the Government's highest economic policymakers was asked not long ago by the Treasury to urge the public to buy bonds; he refused, on grounds that the 5.5% interest rate did not keep up with inflation. In sum, bond buyers actually lost money. Realizing this, Americans long redeemed their old bonds faster than they bought new ones.
Now, in an unexpected turnabout, the Treasury Department reports that savings bonds are selling better than they have since 1945.
Read more: http://content.time.com/time/magazine/article/0,9171,910065,00.html#ixzz2e6hrRtWf

Monday, June 04, 1979
Federal interest rate ceilings limit the payout on their passbook accounts to 5% in commercial banks and 5.25% in savings institutions, which is less than half the current rate of inflation—and much less than a higher-roller gets for investing $ 1,000 or more in a money market mutual fund. The small saver's squeeze is summed up in a Citibank anti-ceiling advertisement: "Deposit $500 with us today and we'll give you back $475 next year."
Read more: http://content.time.com/time/magazine/article/0,9171,946264,00.html#ixzz2e6XFsIDJ

Monday, June 08, 1981
20% annual interest—Trust Deeds Safely Secured... 18% United States Government Guaranteed Securities ... $3,000 earns 15.086% per year for 26 weeks ... 15% interest on as little as $1,000. No risks. No penalties. No fees.
Read more: http://content.time.com/time/magazine/article/0,9171,922571,00.html#ixzz2e6Ya28pa

Here you go... let's make this legible:

(This makes for a fascinating chronology. Thanks JoMoney)

Monday, Dec. 03, 1956
Will the tight money market get tighter still? Last week, Wall Street apparently feared that it would, and that worry, plus year-end tax selling and the Suez crisis (see below), sent stocks on the Dow-Jones industrial average edging down to 472.56, nearly 50 points off the peak last April. The tip-off to Wall Street was the U.S. Treasury's action: it had to offer an interest rate of 3.043% to sell $1.6 billion worth of 90-day bills, a rate slightly higher than the Federal Reserve's 3% rediscount rate.
Read more: http://content.time.com/time/magazine/a ... z2e6wEV4Es

Monday, Feb. 16, 1959
The U.S. Treasury offered $9.1 billion in new securities last week to private holders of maturing debt and got a shock. It had hoped to persuade most of the holders of maturing issues, bearing 1⅞% and 2½% interest rates, to trade them in for new Government securities paying 3¾% and 4%. Instead, owners of more than 20% of the old issues demanded to be paid off in cash, the biggest such demand in six months. To help make up the difference, the Treasury must go to the public this week with a $1.5 billion emergency issue.
The failure of the latest debt...
Read more: http://content.time.com/time/magazine/a ... z2e6mLJbc4

Monday, May 11, 1959
The sick Government-bond market last week had its worst sinking spell. As prices of old issues hit new lows, their yields rose as high as 4.28%. exceeding the 4¼% ceiling on coupon rates the Government can set on new long-term bonds. Not since the hectic, tight-money days of early 1932 have yields risen so high. The sinking spell came at a particularly bad time for Treasury Secretary Robert B. Anderson; he needed $5.3 billion to carry the Government through June 30.
Read more: http://content.time.com/time/magazine/a ... z2e6tTHslo

Monday, May 25, 1959
When money rates are rising, even well-priced bond issues often meet a cool reception because buyers are waiting for still higher rates. Last week the U.S. found buyers scarce for its latest issue. To holders of $1.8 billion in maturing issues, the Treasury offered to exchange a short-term (one year), attractively priced (4.05%) issue. Instead of taking the new issue, 30% of the noteholders asked for $547 million in cash, highest attrition rate since the record 32% of May 1955.
Read more: http://content.time.com/time/magazine/a ... z2e6xB6rGE

Monday, June 15, 1959
The President of the richest nation on earth last week publicly confessed what everyone on Wall Street has known for months. The U.S. Treasury cannot sell its long-term bonds. This week Congress got the President's proposal to tide the Treasury over its crisis. In a special message Ike 1) recommended an end to the statutory ceiling on interest rates both for savings bonds (now pegged at 3.26%) and long-term Treasury securities (pegged at 4.25%) so that they can compete in the open market, and 2) asked for a ½% boost in the interest rate
Read more: http://content.time.com/time/magazine/a ... z2e6nE4PEn

Monday, Oct. 12, 1959
The U.S. Treasury Department, which has had trouble raising the cash it needs, last week found a way to tap some new money. It issued $2 billion in four-year, ten-month notes at an interest rate of 5%, the highest since the tight-money days of 1929. The rate was so attractive that an avalanche of subscriptions poured in from small investors. Said New York's Manufacturers Trust: "It was fantastic. Everyone in the Government bond department was too busy to even go out for lunch.
Read more: http://content.time.com/time/magazine/a ... z2e6hFEUKB

Friday, Apr. 14, 1967
What the Johnson Administration wants, the Federal Reserve Board has not always delivered—at least not while the economy was booming. In late 1965, when the President wanted an easy-money policy, the Fed seemed to go out of its way to tighten things up.
Read more: http://content.time.com/time/magazine/a ... z2e6lI8vhL

Monday, Sept. 27, 1971
When it comes to buying U.S. savings bonds, patriotism has not paid —until recently. One of the Government's highest economic policymakers was asked not long ago by the Treasury to urge the public to buy bonds; he refused, on grounds that the 5.5% interest rate did not keep up with inflation. In sum, bond buyers actually lost money. Realizing this, Americans long redeemed their old bonds faster than they bought new ones.
Now, in an unexpected turnabout, the Treasury Department reports that savings bonds are selling better than they have since 1945.
Read more: http://content.time.com/time/magazine/a ... z2e6hrRtWf

Monday, June 04, 1979
Federal interest rate ceilings limit the payout on their passbook accounts to 5% in commercial banks and 5.25% in savings institutions, which is less than half the current rate of inflation—and much less than a higher-roller gets for investing $ 1,000 or more in a money market mutual fund. The small saver's squeeze is summed up in a Citibank anti-ceiling advertisement: "Deposit $500 with us today and we'll give you back $475 next year."
Read more: http://content.time.com/time/magazine/a ... z2e6XFsIDJ

Monday, June 08, 1981
20% annual interest—Trust Deeds Safely Secured... 18% United States Government Guaranteed Securities ... $3,000 earns 15.086% per year for 26 weeks ... 15% interest on as little as $1,000. No risks. No penalties. No fees.
Read more: http://content.time.com/time/magazine/a ... z2e6Ya28pa

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Valuethinker » Tue Jul 03, 2018 3:35 pm

nedsaid wrote:
Tue Jul 03, 2018 11:36 am
I remember many years ago, I heard an economist speak who was worried about the high deficits that the Reagan administration was running up during the 1980's. Pretty much hearing how the U.S. could go bankrupt and how this was going to hurt the dollar. Stuff like that. At that time, the US was running deficits, the economy was strong, and yet interest rates were falling. The Brits, under Margaret Thatcher were running surpluses and yet their interest rates were rising. Being a smart-aleck twenty-something, I asked the economist why this was so? Wouldn't you expect interest rates to be rising in the US and falling in the UK? He had no answer and I gave him credit for saying he didn't know.
The answer is obvious now if it was not then. The US economy coming out of the worst postwar recession yet experienced was not at full employment. Demand stimuli thus did not cause higher inflation. Also oil prices fell from their 1980 peak, the highest ever recorded in history adjusted for inflation. Inflation was thus falling so the Fed cut rates (raised them again in late 1980s).

British wages were much stickier in the face of high unemployment and inflation had been much much higher than USA, over 20 per cent pa thru much of 1970s. Thus Central Bank was much more aggressive in using high interest rates to cut inflation and it took much longer.
This gave me a suspicion that the standard explanations didn't quite work. In a strong economy, you would expect that relatively large Federal deficits would crowd out private borrowing and would thus restrict the economy. The crowding out effect just never seems to happen. Reagan had a robust economy, ran historically high deficits, and interest rates fell. Obama had a slow recovery in the aftermath of the financial crisis, ran historically high deficits, and interest rates fell.
Interest rates did rise in the late 1980s at the end of a 10 year boom. Obama the deficit *fell* after the first 18 months and the US economy was nowhere near full employment (that is why no pay raises).

Greenspan made his name over Clinton. The rise of cheap manufactured imports allowed the US economy to run faster and further without causing inflation so Greenspan kept interest rates low. Thus the late 1990s boom.

I don't mean to say that if you want interest rates to fall that all you have to do is run high deficits. Certainly, there are other factors at work here. You would have expected a crowding out effect during the relatively strong Reagan economy but it didn't happen. One thing that helped Reagan was that energy prices fell and that was a big factor in all of this. During Obama's administration, private loan demand was relatively weak so it was no surprise there was no crowding out effect there. The big increases in Federal Debt pretty much cancelled out the debt destruction in the private sector, this helped keep money supply from collapsing. In our economy, debt is money and our currency is debt based.

Pretty much, I am saying that people ought to have perspective on this. The deficit numbers are large but so is the size of the economy and the size of the debt. A trillion dollar deficit adds not quite 5% to the debt. If the economy grows at 3% real and has inflation of 2%, things don't look so out of whack to me. The numbers are big, difficult to comprehend, but that doesn't mean that things are out of control.

Do I believe that deficits don't matter? Actually I believe they do. At some point, you have to worry about inflation pressures and effects upon the dollar. There is also the private banking system, which through the multiplier effect probably has a bigger effect on money creation than Federal debt. The Fed can encourage or discourage private lending, the biggest lever being short term interest rates.

What I am trying to say is that this is a complex topic. Many things at play here. I would not panic over a one day tepid treasury market. As one poster said, maybe a lot of traders were watching the world cup. I wouldn't read too much into short term events like this.
Private sector debt creates its own volatility. That's what happened to USA Ireland UK Spain Iceland post 2006.

Public sector debt the issue is if your real interest rate exceeds your GDP growth rate you will eventually get into trouble. Real debt cannot grow faster than real GDP forever.

Japan is interesting because they owe much if the debt to themselves. So does Italy. US borrows quite a bit from abroad.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by david1082b » Tue Jul 03, 2018 4:05 pm

Valuethinker wrote:
Tue Jul 03, 2018 3:35 pm


Japan is interesting because they owe much of the debt to themselves. So does Italy. US borrows quite a bit from abroad.
"The U.S. owes itself the biggest share of the national debt. Of the $19.2 trillion in debt as of March 2016, foreign holders accounted for only one-third" https://www.delawarefunds.com/financial ... ional-debt

So most of the US debt is also money Americans owe to themselves. Foreign borrowings exist, yes, but they are overhyped in importance to an astonishing degree.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Ice-9 » Tue Jul 03, 2018 4:16 pm

I did! I bought the 4-wk yesterday! I must be a genius! *

* actually, a good part of my emergency fund is split into four rolling t-bills, so I buy every week...

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by garlandwhizzer » Tue Jul 03, 2018 4:35 pm

I do not believe there will be a shortage of buyers for US. government debt anytime in the foreseeable future. A more significant potential problem is rising interest rates which will increase finance costs for our massive levels of debt as that debt is rolled over as lower yielding bonds increasingly get replaced by higher yielding bonds. Our current govt. debt is 19 trillion and growing. At higher interest rates refinance of that debt with newer higher yielding options is going to take a big bite out of the federal budget and may lead to ever increasing deficits.

Garland Whizzer

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by Doc » Tue Jul 03, 2018 5:23 pm

garlandwhizzer wrote:
Tue Jul 03, 2018 4:35 pm
I do not believe there will be a shortage of buyers for US. government debt anytime in the foreseeable future.
OK. But then why didn't those buyers show up yesterday?

The problem I see is not that the Treasury can't sell its debt but that the market price gets distorted by the lack of auction participation. :idea:
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by willthrill81 » Tue Jul 03, 2018 5:41 pm

Doc wrote:
Tue Jul 03, 2018 5:23 pm
garlandwhizzer wrote:
Tue Jul 03, 2018 4:35 pm
I do not believe there will be a shortage of buyers for US. government debt anytime in the foreseeable future.
OK. But then why didn't those buyers show up yesterday?

The problem I see is not that the Treasury can't sell its debt but that the market price gets distorted by the lack of auction participation. :idea:
I'm no Treasuries expert, but if there is truly a shortage of buyers, which there wasn't in this case, then won't the real yield offered just go up in response?
Last edited by willthrill81 on Tue Jul 03, 2018 5:55 pm, edited 1 time in total.
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nisiprius » Tue Jul 03, 2018 5:53 pm

Doesn't the process begin with the Treasury choosing at an interest rate to offer?
Nope. :oops:
If so, isn't that sort of basically how auctions works?

They offered bills with a 1.940% interest rate, thinking there would be a lot of demand for it, it turned out that they were wrong and that it wasn't enough... so there wasn't much demand, there wasn't much competition? Presumably (????) the bills sold at enough of a discount to give buyers the yield they demanded?

If so, wouldn't that just be normal give-and-take--the Treasury offered a stingy interest rate, now they know, next time they will offer more?

In other words, does this reflect some seismic shift in the market, or does it just mean the Treasury made a slight goof?
Last edited by nisiprius on Wed Jul 04, 2018 3:13 pm, edited 2 times in total.
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MnD
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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by MnD » Tue Jul 03, 2018 6:12 pm

The fed has gone from buyer to seller, likewise for the Social Security Trust Fund as they begin redeeming their bonds. Meanwhile the federal deficit is well past the 2015 trough of -$485B on the way shortly through -$1T annually thanks to measures taken to sharply reduce revenue. Chinese hint at "qualitative" responses to the tariffs.

I've never thought that bonds were "safe" but I do believe the recently ended 35 year bull market in US bonds has lulled a very large percentage of investors into believing that to be so. Like a few post up I don't forsee any shortage of buyers for bonds, but they clearly expect to be compensated and I don't see how the government operates smoothly in the face of sharply rising borrowing costs given our baseline.

Playing with various asset allocation scenarios for the 1966 retiree is sobering and as a late 2018 retiree it gives me something to think about. Real returns for both stocks and bonds were dreadful and the only thing accomplished by reducing "risky" stocks and increasing "safe" bonds was to speed up the process of the 1966 retiree going broke by a few years.

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telemark
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wait, that didn't actually happen

Post by telemark » Tue Jul 03, 2018 6:24 pm

AlohaJoe wrote:
Tue Jul 03, 2018 11:19 am
What a world we live in where "nobody came" means "over twice as many came as were invited to the party".
Somehow the subject of bonds always brings out the hyperbole. Remember when Bill Gross compared the bond market to the Battle of the Somme?

Many people showed up and there was no massacre. Other than that, the title is exactly correct.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by cj2018 » Tue Jul 03, 2018 6:26 pm

whodidntante wrote:
Tue Jul 03, 2018 12:49 pm
Part of me is rooting for an actual shortage of buyers just to watch what happens. Does the Fed step in to buy with created money at that point?
Yes indeed.

Actually, do we have stats on exactly what percentage of bond offering goes to actual investors (both domestic + foreign) versus Fed? I'd be curious to know.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by ThriftyPhD » Tue Jul 03, 2018 6:33 pm

Heh, reminds me of:
Yogi Berra wrote:Nobody goes there anymore. It’s too crowded.
There was demand for $85.75 billion in 4 weeks T bills, they only had $35 billion for sale. Methinks they don't understand what "massacre" means.

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by cj2018 » Tue Jul 03, 2018 6:37 pm

ThriftyPhD wrote:
Tue Jul 03, 2018 6:33 pm
Heh, reminds me of:
Yogi Berra wrote:Nobody goes there anymore. It’s too crowded.
There was demand for $85.75 billion in 4 weeks T bills, they only had $35 billion for sale. Methinks they don't understand what "massacre" means.
Well, the demand you are referring to is quoted in terms of bids so the same financial institution or investor could and do place multiple bids for the same parcel i suppose?

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Re: Treasury Auction - Nobody Came: "Great T-Bill Massacre"

Post by nedsaid » Tue Jul 03, 2018 11:34 pm

Valuethinker wrote:
Tue Jul 03, 2018 3:35 pm
nedsaid wrote:
Tue Jul 03, 2018 11:36 am
I remember many years ago, I heard an economist speak who was worried about the high deficits that the Reagan administration was running up during the 1980's. Pretty much hearing how the U.S. could go bankrupt and how this was going to hurt the dollar. Stuff like that. At that time, the US was running deficits, the economy was strong, and yet interest rates were falling. The Brits, under Margaret Thatcher were running surpluses and yet their interest rates were rising. Being a smart-aleck twenty-something, I asked the economist why this was so? Wouldn't you expect interest rates to be rising in the US and falling in the UK? He had no answer and I gave him credit for saying he didn't know.
The answer is obvious now if it was not then. The US economy coming out of the worst postwar recession yet experienced was not at full employment. Demand stimuli thus did not cause higher inflation. Also oil prices fell from their 1980 peak, the highest ever recorded in history adjusted for inflation. Inflation was thus falling so the Fed cut rates (raised them again in late 1980s).

Nedsaid: Well, pretty much everything is obvious after the fact. I remember well the Reagan tax cuts were called a "riverboat gamble". The fact was there was a lot of uncertainty about what would happen. It was also uncertain that inflation would continue to fall. People were enjoying lower energy prices but still had memories of the 1970's oil shocks. Falling interest rates and falling inflation were not a foregone conclusion.

British wages were much stickier in the face of high unemployment and inflation had been much much higher than USA, over 20 per cent pa thru much of 1970s. Thus Central Bank was much more aggressive in using high interest rates to cut inflation and it took much longer.
This gave me a suspicion that the standard explanations didn't quite work. In a strong economy, you would expect that relatively large Federal deficits would crowd out private borrowing and would thus restrict the economy. The crowding out effect just never seems to happen. Reagan had a robust economy, ran historically high deficits, and interest rates fell. Obama had a slow recovery in the aftermath of the financial crisis, ran historically high deficits, and interest rates fell.
Interest rates did rise in the late 1980s at the end of a 10 year boom. Obama the deficit *fell* after the first 18 months and the US economy was nowhere near full employment (that is why no pay raises).

Greenspan made his name over Clinton. The rise of cheap manufactured imports allowed the US economy to run faster and further without causing inflation so Greenspan kept interest rates low. Thus the late 1990s boom.

Nedsaid: Notice that I said that these are complex issues and quite frankly there is disagreement as to how all of this works. Yes, cheap manufactured imports was another boost to consumer buying buyer and that also help quell inflation. That was yet another factor.
I don't mean to say that if you want interest rates to fall that all you have to do is run high deficits. Certainly, there are other factors at work here. You would have expected a crowding out effect during the relatively strong Reagan economy but it didn't happen. One thing that helped Reagan was that energy prices fell and that was a big factor in all of this. During Obama's administration, private loan demand was relatively weak so it was no surprise there was no crowding out effect there. The big increases in Federal Debt pretty much cancelled out the debt destruction in the private sector, this helped keep money supply from collapsing. In our economy, debt is money and our currency is debt based.

Pretty much, I am saying that people ought to have perspective on this. The deficit numbers are large but so is the size of the economy and the size of the debt. A trillion dollar deficit adds not quite 5% to the debt. If the economy grows at 3% real and has inflation of 2%, things don't look so out of whack to me. The numbers are big, difficult to comprehend, but that doesn't mean that things are out of control.

Do I believe that deficits don't matter? Actually I believe they do. At some point, you have to worry about inflation pressures and effects upon the dollar. There is also the private banking system, which through the multiplier effect probably has a bigger effect on money creation than Federal debt. The Fed can encourage or discourage private lending, the biggest lever being short term interest rates.

What I am trying to say is that this is a complex topic. Many things at play here. I would not panic over a one day tepid treasury market. As one poster said, maybe a lot of traders were watching the world cup. I wouldn't read too much into short term events like this.
Private sector debt creates its own volatility. That's what happened to USA Ireland UK Spain Iceland post 2006.

Nedsaid: Reading Cullen Roche at Pragmatic Capitalism, he seems to say that the bulk of money creation is in the private banking system. So it isn't surprising that private sector debt, as you say, creates its own volatility. What happened was that lending standards got too lax and debt was issued that could never be repaid.

Public sector debt the issue is if your real interest rate exceeds your GDP growth rate you will eventually get into trouble. Real debt cannot grow faster than real GDP forever.

Nedsaid: Well there gets to be a point where interest payments get to be a higher and higher percentage of the national budget, that is a concern. Growing public sector debt too fast can also help create inflationary pressures. But inflation is a backdoor way of paying down the debt, the United States did that in the aftermath of World War II. Heard a couple of stories about how War Bonds lost about half of their purchasing power. Buying War Bonds was a tremendously patriotic thing to do though not a prudent investment.

Japan is interesting because they owe much if the debt to themselves.

Nedsaid: Well, a couple of things. First, Japan has enormous trade surpluses. So they have a big supply of US Dollars. I used to joke that Japan bought Hawaii at obscene prices and the Americans bought it back cheap after the Japanese real estate and stock market crashed at home. Japan is an amazingly productive country and they excel as exporters. Second, the Japanese Central Bank has purchased amazing amounts of their Federal Debt.

So does Italy.

Nedsaid: Can't speak to Italy.

US borrows quite a bit from abroad.

Nedsaid: Again, this is because of the large trade deficits generated by the United States. The excess dollars that China, Japan, Germany, and UK have must go somewhere. They have three choices: buy treasuries, buy US Goods, or invest in the United States. These countries have done all three.
A fool and his money are good for business.

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