Will Treasury Auctions Move Markets?

Here we go again with bond auctions dictating the mood in the market. What should you expect as the Treasury auctions $115 billion in new debt?

On Monday the Treasury auctioned off $32 billion of 3-month bills and $31 billion of 6-month bills to decent demand but investors remained nervous.

That’s because any sign suggesting demand is waning could send bonds and stocks tumbling, and a lot more debt is coming onto the market this week.

On Tuesday the government will auction $42 billion of two-year notes, with $39 billion in five-year notes coming Wednesday and $28 billion of seven-year notes on Thursday.

Treasury Auctions This Week
Tuesday: $42 billion, 2-Year Notes
Wednesday: $39 billion, 5-Year Notes
Thursday: $28 billion, 7-Year Notes

The U.S. government is relying on successful auctions to help fund its stimulus programs, but with the debt load expected to reach $1.84 trillion this year, some investors are concerned that demand will fall off.

If that were to happen, the government would be forced to raise the returns on bonds to attract investors. That in turn could hike up interest rates on mortgages and other types of loans that are closely tied to long-term Treasury yields, potentially choking off a recovery.

The auctions this week come as Chinese officials begin two days of high-level talks with the Obama administration in Washington. China is the largest foreign holder of U.S. Treasury debt and officials want to be assured that those holdings are safe and won't be jeopardized by inflation.


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