Wednesday, March 24, 2010

NOT GOOD: Treasury Rates Climb

Yields on 10-year notes jumped 14 basis points to 3.83%, in today's trading.

Yields on 2-year notes climbed 7 basis points to 1.10%, the highest level since December.

Yields on 30-year bonds were up 11 basis points to 4.72%.

The spike followed a Treasury that sold $42 billion in 5-year notes at 2.605%. The bid-to-cover ratio was only 2.55, the lowest demand since September. The average over the last four 5-year notes was a bid-to-cover of 2.74.

Most alarming is that there is simply no stop to the Treasury debt that will need to be issued. Issues are going to come, and come and come. Pressue on rates will continue. At some point, it will break the stock market and then give the Treasury an absurd reprieve, as investors rush to short-term Treasury securities for safety.

At some point, though, expect the Fed to start printing at a fierce rate to halt Down Leg 2. It's not going to be pretty. The minute the Fed provides enough money to juice the economy, investors will again start to move out of T-bills, and the Treasury will have to refinance it all again, causing even more fierce interest rate upticks. It's a vicious circle that will pick up in intensity and likely breakdown in some unexpected way, with even more financial casualties.


  1. Will this be the beginning of the end, or the end of the beginning?

    Second dip train pulling in?

  2. a good quote in the previous blog entry from the movie "Millennium". The following are my opinions only. It seems logical that this circus will close on the basis of treasuries. You would think that incessant spending, double and triple accounting, and destruction of capitalist business models should be enough by itself. But in my judgement, a significant narrowing between the 2 and 10 year treasury rates will be the ominous signal this time around, and not just for another recession.