Reuters
4 min read
NEW YORK (Reuters) -U.S. Treasury auctions of notes and bonds this week are even more in focus than usual as tests of market sentiment on U.S. assets, and while investors look like keen buyers of short and medium-term debt, appetite at the long end is more dicey.
These once-routine auctions have become a focus for investors as a gauge of demand, both foreign and domestic, with the July 9 deadline for the 90-day pause on reciprocal tariffs fast approaching.
Aside from bills, the U.S. Treasury will sell a total of $119 billion in three- and 10-year notes, as well as 30-year bonds. The latter will be closely watched for signs that bond investors are putting their foot down and rejecting countries with huge fiscal deficits and mountains of debt.
"We are now in an environment where investors are looking at...demand that could be dropping at a time when supply seems to be on the precipice of rising further," said Zachary Griffiths, head of investment grade and macro strategy at CreditSights in Charlotte.
Bond vigilantes, seemingly back with a vengeance, have questioned fiscal profligacy around the world amid concerns U.S. President Donald Trump's trade war and tax cuts will fuel inflation, while the tariffs will additionally curb global growth and force governments to spend more.
At the same time, last month's U.S. credit rating downgrade by Moody's is a stark reminder that the world's largest economy is courting disaster with a $36 trillion debt pile.
On Tuesday, the Treasury will sell $58 billion in three-year notes, followed by $39 billion in 10-year debt on Wednesday, and $22 billion in 30-year bonds on Thursday. Overall, analysts expect these auctions to go smoothly.
"The trend in these auctions has been reassuring so far," said Guneet Dhingra, head of U.S. rates strategy at BNP Paribas, in New York. "Largely the auction numbers suggest that there has been no meaningful dent in both foreign and domestic demand."
Last month's three-year note auction showed solid results. Indirect bids, which include foreign central banks, took in 62% of the total issuance, lower than April's numbers, but roughly in line with the average for the last 12 auctions.
Offshore investors, particularly foreign official buyers, typically gravitate toward shorter-term Treasuries, specifically those with maturities of less than five years, according to the latest U.S. Treasury survey.
Jay Barry, head of global rates strategy at J.P. Morgan, wrote in a research note that foreign official institutions' focus on the front end suggested that any rotation away from Treasuries "could be realized through letting holdings run off and not reinvesting, rather than selling securities outright."
