Thursday's auctions of the 4- and 8-week bills reinforced the impression that the rise in interest rates, at least on U.S. government debt, is tapering off. While still increasing, the auction yields are not on the same runaway track as they were earlier in October.
The 4-week bill attracted $163.6 billion in tender, up from $155 billion last week, $152.7 billion two weeks ago and $139.6 billion three weeks ago. While tenders have increased, it is also worth noting that the accepted volumes have gone up as well: $52.2bn three weeks ago, $62.7bn two weeks ago and $67bn last week.
The rise in tender has kept apace with the rise in accepted investments, thus keeping the T/A ratio relatively stable over the last couple of weeks: today's auction landed at 2.43.
The median yield on the 4-week auction was 3.55 percent, which is up from 3.355 last week and 3.19 percent the week before. This more modest yield increase was paired with a stable T/A, adding a bit more evidence that the pressure on the U.S. Treasury to continue to raise yields is easing.
A similar impression is given by the 8-week auction, where the median yield landed at 3.78 percent. This is only modestly up from last week's 3.64 percent. This yield increase also came with a rise in the T/A ratio, from 2.42 two weeks ago and 2.52 last week, it stopped at 2.62 this week.
Tender offers amounted to $148.9 billion, of which $56.8 billion was accepted. The tender was $10.3 billion higher than last week, while the accepted volume was close to last week's $55 billion.
In addition to the short-maturity bonds, on Thursday the Treasury also held its monthly auction on 7-year notes. This auction tendered $85.1 billion, of which $35 billion was accepted (T/A = 2.43). The median yield at the auction was 3.95 percent. This is a small increase from last month's 3.85 percent. While the T/A was a drop from last month's 2.57, it is well in line with the T/A ratios from the auctions in May-August.
It is important to remember that even if the interest rates at new Treasury auctions do not rise as fast as they have recently, and even if they stop rising, that does not mean the cost of the government debt will stop rising. On the contrary, after today's auctions the estimated average interest rate on the U.S. debt is at 1.98 percent. This rate has now increased by 0.01 percentage points per day for a whole week, and is 0.11 percentage points higher than at the start of October.
Even if the current rise in the average interest cost came to a stop, the difference between the current rate and the 1.87 percent from the start of the month, is equal to $300 billion in higher interest-rate costs for the federal government over the entire fiscal year.
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We do not give investment advice.
This blog provides analytical information solely for the purposes of 1) predicting the cost of the federal debt, and 2) for assessing the risk for a U.S. fiscal crisis. All information published here, forecasting and other, is based on publicly available data from the U.S. Treasury, including but not limited to approximately 65 percent of the current debt; on macroeconomic data, including but not limited to monetary policy decisions by the Federal Reserve; and on macroeconomic theory.
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