Latest / Markets with Megan: A Quick Financial Markets Update / Uncovering the Implications of Weak Treasury Auctions | Episode 137 | 05-29-24

Transcript

Uncovering the Implications of Weak Treasury Auctions | Episode 137 | 05-29-24 · Markets with Megan: A Quick Financial Markets Update

• 0:03
  Megan Horneman: Today we're going to talk about something a little bit different.
• 0:05
  Megan Horneman: While we usually focus on economic news, today we're going to talk about some of the most recent Treasury auctions that we got.
• 0:11
  Megan Horneman: Hello, this is Megan Horneman.
• 0:13
  Megan Horneman: It's Wednesday, may 29th, and we're here with our regular segment of Markets with Megan.
• 0:17
  Megan Horneman: So why do we want to talk about Treasury auctions?
• 0:19
  Megan Horneman: Well, because they're market-moving this time.
• 0:22
  Megan Horneman: These typically aren't big market moving events.
• 0:24
  Megan Horneman: This is when we auction off treasury debt in order to fund our deficit and typically we get quite good demand on this treasury debt.
• 0:35
  Megan Horneman: But what we've seen over the past year is that these have been really kind of volatile, these auctions, and it's creating some uneasiness in the market.
• 0:40
  Megan Horneman: This week we got auctions for the two five and seven-year treasuries and what we saw was that the demand was weaker and we're issuing more debt in order to fund our deficit.
• 0:52
  Megan Horneman: So when that happens, prices of bonds go down and the yields go higher.
• 0:57
  Megan Horneman: What happens there is the equity markets don't like it, and that's what we've seen for the past couple of days.
• 1:02
  Megan Horneman: So let's just dig into a couple of these auctions.
• 1:04
  Megan Horneman: All three of these auctions had a tail, which means that the yield at the auction, or the actual yield that came out was higher than what was anticipated, so that shows weak demand.
• 1:17
  Megan Horneman: The bid to cover ratios this is the amount of bids or offers to buy these bonds versus the amount that were sold All of these were weak.
• 1:26
  Megan Horneman: The two-year was the lowest since November of 2021.
• 1:30
  Megan Horneman: The five-year was the lowest since September of 2022.
• 1:33
  Megan Horneman: And then the seven-year was the lowest since April of 2023.
• 1:38
  Megan Horneman: The markets, as I said, don't like this.
• 1:41
  Megan Horneman: We need people to buy our treasury debt because our deficits are not going anywhere but worsening, and if we don't have buyers of that, we're going to be seeing higher yields across the board.
• 1:51
  Megan Horneman: What higher yields in the treasury market mean?
• 1:54
  Megan Horneman: Well, think about it.
• 1:55
  Megan Horneman: Mortgages are linked off of this, loans are linked off of the treasury market, so this is a negative here for the equity market as well as the bond market.
• 2:03
  Megan Horneman: We'll be back tomorrow.
• 2:05
  Megan Horneman: That's all we have today for this.
• 2:07
  Megan Horneman: The auctions are done for the week, but we'll be back tomorrow and Friday with some more economic news, including the much anticipated PCE deflator, which is the Fed's preferred inflation gauge.
• 2:18
  Megan Horneman: Thank you.