Demand at US Treasury auctions hits lowest since 2009
Demand at US Treasury auctions fell this year to the lowest since 2009 as Wall Street dealers and central banks pulled back.
Investors submitted bids for 2.8 times the almost $2 trillion of notes and bonds that the US has offered, data compiled by Bloomberg shows. The ratio is down from 2.99 last year.
While the drop-off in demand for government debt shows the fallout from the recession may be fading, it's potentially alarming for the Treasury. With the Federal Reserve signalling plans to raise interest rates four times next year after lift-off from near zero this month, dwindling bids from two mainstays of the $13.1 trillion Treasuries market leave the US government more dependent on private buyers. The risk is that their appetite falters as policy makers boost borrowing costs.
The drop is an early warning sign of a broader drop in demand for Treasuries, said David Keeble, the New York-based head of fixed-income strategy at Credit Agricole.
"Next year is a hand-off year to the private-sector buyer. Foreign central banks are stalwarts. Private-sector buyers can change with the wind," he added. The forces behind the decline in bids are two-fold. The 22 primary dealers, which are obligated to bid at Treasury auctions, are absorbing the smallest share of the offerings since at least 2006 amid stricter capital rules, while China is on pace to trim its holdings for the first time ever on an annual basis as part of efforts to buoy its currency. But some investors are stepping up to offset the drop, lured by the highest sovereign yields among G7 economies.
At 1pc, US two-year yields are about 0.8 percentage points above the average for other G7 nations. (Bloomberg)