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Wednesday, March 25, 2009


weak treasury auction

this is a bad day for government debt. following on the failed gilt auction in britain, bloomberg reports on a weak treasury auction in the united states.

Treasury notes fell for a fifth day after an auction of $34 billion in five-year notes drew a higher-than-forecast yield, spurring concern record sales of U.S. debt are overwhelming demand.

U.S. securities dropped even after the Federal Reserve today bought $7.5 billion of Treasury notes, its first targeted purchases of U.S. securities since the early 1960s. The five- year auction drew a yield of 1.849 percent.

“This caught a lot of people unaware,” said Bulent Baygun, head of interest-rate strategy in New York at BNP Paribas Securities Corp., one of the 16 primary dealers that are required to bid at Treasury auctions. “Prior to the auction the Fed conducted its purchases of Treasuries, which may have compressed interest rates below where they would have been otherwise.”

not the outcome the fed would have wished for the first day of quantitative easing. some of these difficulties could be tied to quantitative easing and the price distortions created thereby. some also could be the product of a growing relief rally in capital markets diminishing safe haven flows. some of it is good old fashioned warfare with the government.

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