The Interest Rate Scare
Once again, the market managed to side-step the threat of rising interest rates.
In fact, investors appeared eager to move back into the Treasury market Thursday after a surprisingly strong auction of 30-year bonds, pulled yields down from multi-month highs.
Treasury yields are closely tied to interest rates on mortgages, and both have been rising for several weeks as investors worried about inflation.
The U.S. Treasury Department offered a yield of 4.72 percent to lure in buyers — the highest yield offered at a 30-year bond auction since August 2007, but lower than the market anticipated.
And the auction got plenty of bidders. The ratio of bids to bonds sold was 2.68 percent, much higher than the 2.14 ratio at last month's auction of 30-year bonds.
Even demand from other countries appeared very strong. Indirect bidding, which usually consists largely of foreign bids, contributed to nearly half of the total bids accepted.
Investors had grown concerned earlier in the week about foreign demand after a Russian central bank official said the nation was considering reducing its U.S. Treasury holdings.
Many investors now say those fears were overblown.
"I don't think the foreigners are going to abandon the Treasury market," says John Spinello, bond strategist at Jefferies & Co. "They can't afford to abandon the Treasury market."
What lies ahead?
Next week, the govenrment will not hold any auctions, so trading will likely be light and calm, Spinello says. The following week, though, could be a wild one as the government resumes its auctions.
We'll be watching.
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