Strange Trend Still Present in Treasury Auction Results

Today the Treasury auctioned the 7-year note. This auction is of particular importance, since this maturity class has the largest share of debt of all maturity classes. As of today, the Treasury owes $3,527.5 billion in 7-year notes, which is equal to an estimated 16.9 percent of the debt held in nominal securities. 

The auction sold $38.8 billion worth of debt, with $85.4 billion in tender offers. The T/A ratio, 2.2, was the lowest in ten months. 

There was a remarkable drop in median yield at the auction: at 3.819 percent, this is the lowest since the 3.09 percent back in August. With this yield drop, the 7-year auction adds to a noteworthy trend in Treasury auctions, where the T/A ratio falls concurrently with the median yield. A lower T/A means that less money is available per dollar of debt the Treasury intends to sell. This, in turn, is a signal of weaker market interest, especially since the Treasury over the past two years habitually sold $40-70 billion worth of 7-year notes per auction. 

If there is weaker market interest in the 7-year, this should be reflected in a rising median yield. However, the opposite happened in today's auction, where the yield declined. While observed only at one auction so far, this phenomenon is nevertheless consistent with a trend observed at other auctions recently. 

The 7-year auction today replaced a $29 billion batch of maturing debt. The annualized increase in debt costs from this auction is $910 million. 

Due to the size of the 7-year bond, and due to minor tweaks to make our forecasting model even more precise, we estimate that as of today, the average interest rate on the debt of the U.S. government is 2.1 percent. This is a return to rising rates after a week's worth of standstill. 

Interest rates in the secondary market for U.S. debt remain stable, with rates ranging from 3.76 percent for the 10-year note to 4.79 percent for the 1-year bill.  

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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.