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1. Treasury Auction
By Christopher Grey
9:21 a.m. EDT
I think the unusually poor results of the Treasury auction yesterday should have been bigger news. Weak demand for Treasuries and higher yields have far reaching implications for the markets.
On the bullish side, the very steep yield curve historically means that the economy should be recovering. On the bearish side, higher long-term interest rates will start to compete for capital with stocks and other assets. It is ironic, but not unexpected, that long-term Treasury yields have moved substantially higher since Ben Bernanke announced that the Fed would monetize the debt by purchasing hundreds of billions of dollars of Treasuries in an effort to keep yields low. Historically, attempts to monetize sovereign debt have always led to higher interest rates except in Japan.From my perspective, widespread price deflation is now off the table. That is good news, but the stagflation we're going to get instead is not really so much better.