Investment Help

If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.

Wednesday, August 25, 2010

Interest Rate Watch - 2 year Treasury Auction Results

If you followed Monday's post and went to the Bloomberg site as explained, you saw that "...dealers were forced to take down 59% of the month's $37 billion offering" of this month's
2-year Treasury note auction. This, of course, is not good because it indicates that non-competitive bids were weak. As we know, individuals have been pouring into bonds. This could be an indication that this may be nearing an end.

The Bid/Cover ratio was 3.12, which was assessed as "respectable".

The stop-out rate, which indicates the highest rate the Treasury had to pay, was .498%. The Treasury starts with the lowest yields, takes the non-competitive bids next, and then the higher bids (in terms of yield, remember higher yields mean lower prices in bond land!).

Today's auction is for $36 billion of 5-year Treasury notes. Results will be available on the Bloomberg site, or CNBC, shortly after 1 pm.

A couple of extra points to note on the process. You may have wondered about the possibility of the embarrassing situation of the Treasury not being able to attract enough bids for its auction. You can stop worrying. There are 17 designated primary dealers. They have to bid on the auctions. If prior to 1 pm Treasury had not received enough bids, they would do another round with their primary dealers and tell them to increase the amount they are bidding on.

Secondly, a good way for individuals to participate in these auctions ( although I'm not sure why they would want to at these low yields) is to go to Treasury Direct - a site where they can open up an account and participate commission free.

Finally, note that the Treasury is doing the auction. It is the government's bank. To the extent that the Federal Reserve (the Central Bank - a completely different entity) buys and sells Treasury securities, it is changing the reserves in the banking system and thereby changing the nation's money supply (especially when banks are in the mood to lend).

I sure this is more than some of you cared to know about this process, but happy Treasury auction following!


  1. Today Morgan Stanley issued a report indicating that in their opinion government defaults are inevitable. “The question is not whether they will renege on their promises, but rather upon which of their promises they will renege, and what form this default will take.” The sovereign-debt crisis is global “and it is not over,” the report said. While these comments may be more directed at European debt, it seems inevitable the US is heading in this direction. In this environment, I would not be a buyer of US government debt. With dealers forced to take 59% of the auction, maybe a lot of other investors are reaching that conclusion as well.

  2. I hope they are talking about sovereign debt. The party line of course has always been that because the government has unlimited taxing authority they will never default. Many people though have never considered the possibility of a serious tax rebellion.
    I think the auctions may give us a clue of stocks turning up. A serious portfolio shift will be seen by investors moving out of bonds into equities, i.e. joining you in protesting anemic yields.