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Wed Feb 14, 2018, 01:47 PM

'Failing' bond auctions are the real reason behind the climb in yields, strategist says

From https://www.cnbc.com/2018/02/14/us-treasury-yield-climb-may-be-due-to-failing-bond-auctions.html

I've never heard of a Treasury Auction characterized as failed.
I didn't think that rising Treasury (effective) rates may be caused by auctions, I thought they were always set by auction.
Puff piece or informative?

US bond auction failed The one surprise for the year could be from US treasuyr bnonds
No-one is discussing US failed bond auctions: Embark Group
7 Hours Ago | 03:39

Bond yields are rising because essentially no one wants to buy them, says one investment expert.

Forget short-volatility instruments and other suggested culprits of the recent equity market sell-off, Peter Toogood, chief investment officer at financial advisory firm Embark Group, told CNBC Wednesday. Spiking bond yields, which spooked the equity markets last week, are a result of a decreased willingness to take on countries' debt as central banks move away from doing it themselves.

"Everyone's citing the XIV (short volatility) trade as being the reason it happened how about the failing bond auctions?" Toogood asked. "The bond auction failed, basically. People didn't want to step up at that point. How about this old idea that maybe the Treasury yield has to go up because it has to be higher to attract capital?"

Yields on U.S. Treasurys have touched multi-year highs after nearly three decades of a bond bull market, which up until late 2017 saw a consistent downtrend in yields. The benchmark 10-year U.S. Treasury yield is currently at 2.835 percent, after clipping a four-year high of 2.902 percent Monday. Bond yields move inversely to prices.

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Reply 'Failing' bond auctions are the real reason behind the climb in yields, strategist says (Original post)
Yonnie3 Feb 2018 OP
Gothmog Feb 2018 #1
Yonnie3 Feb 2018 #2
unblock Feb 2018 #3
Lucky Luciano Feb 2018 #4
bronxiteforever Feb 2018 #5
eppur_se_muova Feb 2018 #6
Yonnie3 Feb 2018 #7
A HERETIC I AM Feb 2018 #8

Response to Yonnie3 (Original post)

Wed Feb 14, 2018, 01:49 PM

1. If investors stop buying US debt, we are in trouble

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Response to Gothmog (Reply #1)

Wed Feb 14, 2018, 01:59 PM

2. I would paraphrase to say.

If investors stop buying US debt at low rates, we are in trouble.

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Response to Gothmog (Reply #1)

Wed Feb 14, 2018, 02:00 PM

3. they'll buy, treasuries just have to offer a higher yield is all.

people are all a tizzy because the debt markets are finally reflecting an economy we've been shooting for for years.

we've finally got a hint of modest overall inflation and the fed can start unloading its assets and raise rates slowly. of course these actions are going to mean higher yields. we've been trying to get to this point for a long time.

no need to panic....

... yet.

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Response to unblock (Reply #3)

Wed Feb 14, 2018, 02:18 PM

4. Yes...and the tax cuts added an unnecessary short term stimulus...

...that the fed will need to offset by raising rates faster to stave off inflation.

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Response to Lucky Luciano (Reply #4)

Wed Feb 14, 2018, 02:30 PM

5. +10000000

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Response to Yonnie3 (Original post)

Wed Feb 14, 2018, 02:46 PM

6. Ummmm ... so the tax bill caused the DJ to go down ? Is that the overall interpretation ? nt

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Response to eppur_se_muova (Reply #6)

Wed Feb 14, 2018, 03:28 PM

7. Yes, that is mine.

It also seems to have kept bond prices from going up (rates down) as is often the case when stock prices fall. The tax bill makes it harder for the US to pay their obligations.

My plan would have been to continue raising interest rates with a tax decrease for the lowest two brackets and a phase out of some of the special tax treatments like the carried interest one. If the economy cooled off too much during the next year then measured stimulus would be in order.

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Response to Yonnie3 (Original post)

Sun Feb 18, 2018, 07:41 PM

8. The answer to the question you pose at the beginning of your OP.....

is that COUPON rates are set at auction on those bonds that pay one - securities with a maturity 2 years and longer. Yield is set on the shorter maturities in the same way, however all Treasury bonds trade on the secondary market where their price is free to change, and therefore their yield.

In other words, a 30 year bond is auctioned by the Federal Reserve Bank of New York, on behalf of the US Treasury and the coupon rate is set at 3% (currently the case). Those bond PRICES however may be bid above or below their Par value ($1000) such that at the initial auction a 3% bond may have a higher yield if the bond is bid below par, or a lower one if the bond is bid above par.

( I want to make clear here that the NY Fed branch is acting solely as an agent in conducting these auctions. The "Fed Funds Rate" which is the interest rate the Federal Reserve charges member banks, and the interest or coupon rate of a Treasury bond are not necessarily directly related. They are two different things.)

The ideal situation is to have demand so high that bonds are sold at auction at a premium to par, because the Treasury can get more than their face value and only has to redeem them at that value when they mature.

The coupon rate never changes in the secondary market. Yield does change because, as I said above, price is free to change depending on demand.

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