Record Treasury Auctions and the Fed Running Out of T-Bill Gas

$123 billion. Anyone remember when that seemed like a ridiculous amount of money for a single weekly Treasury auction? Pfft, Bizarro World, bitches.

CNN Money:

Treasurys fell Monday as the U.S. government readies to sell a record $123 billion worth of debt this week.

The U.S. is selling $7 billion worth of 5-year Treasury Inflation Protected Securities, or TIPS Monday. The government will also offer 2-, 5- and 7-year notes later this week.

The government has sold record amounts of Treasurys this year to help fund its economic stimulus efforts and service a growing budget deficit.

"Trade is likely to be a function of the ability of the market to find buyers for the auction," said Nick Kalivas, vice president of financial research at MF Global.

While demand for U.S. debt has been relatively firm at recent auctions, many traders say the constant supply of new issues could eventually drive prices lower, potentially hindering the government's ability to finance its operations.

"The results of the auctions will be under definite scrutiny as the market is concerned about the absorption of the colossal size of supply," Kalivas wrote in a note to clients.

Bonds prices have typically fallen ahead of big auctions this year, though the market can be volatile during the week in which the large amounts of debt are being sold.

Separately, the Federal Reserve will purchase Treasurys maturing in December 2013 and April 2016 on Thursday in the final phase of its plan to buy $300 billion worth of U.S. debt.

Well wait, what happens when the Fed runs out of T-bill money? Who is going to buy our bullshit debt then?

Business Insider dives deeper into the signal the Treasury is sending all of us:

Potential rising yields caused by this shift could be bad news for people currently holding longer term U.S. government bonds such as Bill Gross, or even longer-term corporate debt as well.

Bloomberg: The government may reach the average maturity of six years by doubling sales of 30-year bonds to $250 billion and raising 10-year notes by a third to $350 billion, according to FTN. Those maturities would need to account for 32 percent of all auctions to achieve an average maturity of 6.5 years, up from 18 percent currently, FTN estimates.

“There’s going to be a lot of Treasury supply,” said Stuart Spodek, co-head of U.S. bonds in New York at BlackRock, which manages $539.6 billion in debt. “The easy money has been made.”

I really hope the Treasury is paying attention. If they are, let me make it painfully clear: You guys are fucked!

(you're welcome)

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.