US bonds are slightly weaker this morning following on from yesterday’s rather poor three year UST auction. The treasury auctioned $38bln in the three-year note with a two basis point tail and 38% awarded to dealers elevated from 33.5%, the average of the last six auctions, reflecting lacklustre demand from the buy-side. One of the reasons given is that Fed Chair Powell’s semi-annual testimony to the House Financial Services Committee ran all the way up to the bidding deadline, keeping likely buyers on the side-lines.
Although this testimony is eagerly awaited by the market for any clues as to the Fed’s up to date thinking it is very rare that any new news is forthcoming. This testimony was no different as Powell stuck to the script from the 29th Jan FOMC meeting maintaining that the Fed’s Bill buying operation will continue at least through quarter two and the Repo operations will continue through April. Nothing was forthcoming regarding inflation concerns but he did add in ”Some of the uncertainties around trade have diminished recently, but risks to the outlook remain. In particular, we are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.” Broadly, the chair thought the US economy was in “a good place.”
President Trump, not wanting to be left out, gave his views on the testimony that he was eager to share on twitter ‘when Jerome Powell started his testimony today, the Dow was up 125, & heading higher. As he spoke it drifted steadily downward, as usual, and is now at -15. Germany & other countries get paid to borrow money. We are more prime, but Fed rate is too high, Dollar tough on exports.’ No change there then.
Over the next couple of days the US Treasury will auction a further $27bln at a ten-year term and $19bln of a thirty-year maturity; it will be interesting to see if buy-side participation picks up in these longer-dated issues.