Results of the Treasury's $35 billion auction of five-year notes were favorable from all angles. The bid/cover ratio was 2.32, which is above the 12-month average of 2.21. Expressed in dollars, the dollar amount of bids submitted was $81 billion, compared to an average of $61 billion the past year, reflecting strong bidding. The percentage of the auction that went to indirect bidders was 44.2%, the most since February and the second-most of the past 20 months, indicating that the auction is in "good hands," so to speak -- in the hands of end-users rather than primary dealers. The auction yield was 2.31%, more than a basis point lower than expected and below the 2.317% bid seen on dealer screens at the 1 p.m. auction deadline.
Today's auction was the second strong one in a row -- yesterday the Treasury sold two-year notes. There is importance to today's auction that did not exist with the two-year, because a five-year maturity is far different in the current zero-interest-rate environment. In other words, if fears about growth, inflation and rate hikes grow, the five-year will reflect this idea more than the two-year because in the context of today's economic and financial climate, two years is far too short a time to reflect these worries. Five years, on the other hand, is plenty of time for a revival in global economic growth to occur and nudge growth and inflation higher and result in Fed rate hikes. Today's result therefore suggests Treasuries are closer to their fair value, since it was not a short-dated issue that fared better, but the "long bond of the short end."
Know what you own: A number of bond-related ETFs might be of interest to readers of this column, including the SPDR Barclays Short-Term Municipal Bond ETF (SHM - commentary - Trade Now), the SPDR Barclays Municipal Bond (TFI - commentary - Trade Now) ETF, the iShares Barclays 20+ Year Treasury Bond (TLT - commentary - Trade Now) ETF, the iShares Barclays 7-10 Year Treasury Bond (IEF - commentary - Trade Now) ETF, the iShares Barclays 1-3 Year Treasury Bond (SHY - commentary - Trade Now) ETF, the iShares Barclays 3-7 Year Treasury Bond (IEI - commentary - Trade Now) ETF and the iShares Barclays 10-20 Year Treasury Bond (TLH - commentary - Trade Now) ETF.
P.S. Will you be there when Cramer makes his next move?
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Tony Crescenzi Blog TIPS Point to Alarming Inflation Outlook 5/27/2009 12:47 PM EDT The securities are showing a rapid increase in 10-year inflation expectations.
Tony Crescenzi Blog Mortgage Apps Mixed 5/27/2009 11:54 AM EDT The home purchase index rises only slightly, in part because of seasonal adjustments.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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