As the US Treasury prepares to sell $39 billion 10-yr bonds today, the big question on economist’s minds is, who will buy our bonds? The Treasury sells billions of dollars in bonds to fund government debt; typically, foreign central banks, or “Indirect Bidders,” are strong buyers. In the past two months, Indirect Bidders have scooped up around 65-70% of the 10-year auctions. (1)
Treasury securities have been the world’s reserve currency and are thought of as a “safe haven” in the storm. Foreign investors play an intricate part in keeping our financing rates reasonable by buying our debt.
Bond rates have also been on a rollercoaster since the beginning of the year, moving from a high of 4.57% on the 10-year in January to 3.87% last week to 4.51% last night (2). A strong auction will steady US borrowing costs, but if the buyers disappear, our cost to carry will dramatically appreciate. In addition, domestic investors, who own a significant percentage of Treasuries, have been whipsawed in the stock market and may be cautious staying on the sidelines until tariff uncertainty is clearer.
The concern is that tariffs, in addition to raising prices for consumers on everyday purchases, could also create anti-American sentiment regarding the financing of our national debt. If this latter point becomes an issue, the cost will also impact US citizens as our government must figure out a way to pay for the additional charges. This potential shift in sentiment could introduce new uncertainties into the market.
The outcome of today’s auction is not just a matter of interest, but a crucial event that will provide further evidence of the financial effects on the Federal Reserve’s inflation mandate. Its success or failure will have a significant impact on the market and the economy.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
