10 Year Treasury Auction Spikes To 4% +80bps From Prior Auction

Todays 10 year auction spiked to 4%. I’ve been saying for awhile that the bond market is the new master. If rates continue to spike higher, then that will cap the equity markets. Rates are going higher on the long end. The cost to finance for the US government is going higher.

Below - you can see that the bid to cover has stayed about the same. The rate was higher and the size of the auction was dramatically smaller than the prior auction. It’s a trend that I’d like to continue to watch. It seems as though the government is able to manipulate the Bid:Cover ratio by controlling the size of the auction. I don’t think that you learn anything by looking at just one of these variables in a vacuum. You need to see them all together and watch how they’re trending to learn from the information.

I’ve also been tracking ratio - Bid to Cover divided by the rate. The higher the ratio - the stronger the auction. The weaker the ratio the weaker the auction. You can see that the ratio is moving lower. The stock market will most likely follow the direction of this ratio.

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