Strength of Treasury Auctions

This table is from Haver Analytics. When you look at the bid to cover ratios (value of bids/value of accepted bids), yes the recent auction was disappointing relative to auctions this year. However, when compared to actions in normal times, such as 2006, it's still stronger than at that point. I don't remember anyone in 2006 saying that the U.S. government was on the brink of default. 

The same certainly goes for shorter term bills and notes, where we have actually seen record high bid to cover ratios for some issues. Some of these levels are about 2x what they were in 2006. Generally, the shorter term you go right now, the higher the bid to cover ratios are. Bid to cover ratios have generally been a little bit stronger (and I do mean a little bit) on the short end of the curve than on the long end, probably due to there being a greater preference for more liquid assets. 

Now, what we are seeing in recent action is that bid to cover ratios for short term instruments are running around 4-5x compared to long term running around 2.3x to 2.7x. The reason for this disparity is that long term treasuries are simply a very risky proposition at these interest rates. The odds of significant principal loss are high whereas you don't run that risk with the short term bills. You don't earn any interest on them either, but it's still reflective of individuals and institutions being more concerned about capital preservation than appreciation. 

There was a bit of concern on Wednesday about a "disastrous" 30-year treasury bond auction. In truth, by the metrics that are typically used, it really wasn't that bad.