This weeks long list of Treasury auctions started off with a very good sale of $60 billion in two-year notes today. Today’s sale came with a yield of 0.152%–yep that’s where interest rates are right now–on the two year note. That matched the bid in the when-traded market. Total bids amounted to 2.54 times the amount of debt offered. It’s a good sign when bids exceed the amount on sale. In February the bid-to-cover ration was 2.44 times.
The yield on the benchmark 10-year Treasury fell 7 basis points today to 1.62%. (It takes 100 basis points to make up one percentage point.)
The Treasury will auction off five-year notes on Wednesday and seven-year notes on Thursday. The seven-year note auction will be the biggest challenge of the week since that maturity stands in the current contested ground of worries about inflation. Investors and traders worried about inflation have been selling the seven-year and longer maturities to avoid any increase in yields at the long end of the yield curve. (The outlook for the pace of consumer prices over the next decade as measured by the gap between inflation-linked and plain vanilla Treasuries held steady at about 2.32% following Federal Reserve chair Jerome Powell’s testimony on inflation in front of Congress today. The 10-year so-called breakeven rate has risen from a low last year of 0.47%.) Yields on the seven-year note fell 5 basis points to 1.3%. Ahead of last month’s disastrous auction of the even-year notes, prices fell and yields climbed by 14 basis points in the days ahead of the auction.
Recently, stocks have rallied when bond yields fell–but not today. The worst case explanation is that markets are getting worried that U.S. economic growth may not be quite as strong this year as the Federal Reserve and Wall Street project. Last week the Fed’s revised economic projections pointed to 6.5% GDP growth in 2021.
The small cap Russell 2000 has been the major index most sensitive to shifts in sentiment on economic growth. The Russell 2000 closed down a whopping 3.58% today, March 23. (The iShares MSCI Emerging Markets ETF (EEM), which recently has pulled back on prospects of a stronger dollar, which is one potential result of lower Treasury yields, was off 1.91% at the finish.)