Why Do Bonds At Auction Seem To Care More About That One Auction Than ‘Inflation’?

Back on February 25, Treasury auctioned 7-year notes and it did not go (as) well. Maybe you remember us saying something about, and then again and again and… The prevailing view then – and now – was reflation hadn’t just accelerated, the inflation long-promised by so much “money printing” (or at least by those who equate bank reserves with this) combined with direct fiscal integration was finally at hand.

Not just big, together authorities may have overdone it this time.

Reflation would quickly morph into inflation spoiling low US Treasury yields leading to the also-predicted BOND ROUT!!!! Here was seemingly a solid indication in favor of each of these things. Sky high, supposedly, inflation potential was what had chucked the late February 7s auction.


Treasury has since conducted three more 7-year note offerings and – you know where I’m going with this – each one more successful than the last. And that last one took place just yesterday with essentially blockbuster results in every category.

It was another $62 billion (net) on sale only this time the government ended up with just shy of $150 billion in bids for it (BTC of 2.41), compared to $127 billion in bids (BTC 2.05) back on Feb 25. That’s a substantial change in mostly dealers. The yields have been higher, but yesterday were back to within 10 bps.

The reflation-is-inflation story can’t account for anything here. Had Feb 25’s auction been the start of reflation-is-now-inflation, then the bond selloff would’ve accelerated, too. On the contrary, since the one auction on Feb 25 stands out starkly alone there must’ve been something else going on to explain why this was the lone outlier.

Furthermore, in between these 7s auctions as well as every other maturity, the crazy data has continued to come in hard and fast. There was monster March payrolls, unearthly retail sales, and then the April CPI and its core reaching back as if the Great Inflation itself really was upon us.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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