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Treasury Heeds Term Premium With Coupon Caution
Treasury got the message, apparently. The term premium spoke, and at least someone was listening.
The November refunding announcement, arguably the most important market event in a week full of them, saw coupon increases that were smaller than at least some observers expected.
The curve bull-flattened in response to a more modest increase in auction sizes for 10- and 30-year Treasurys, which were raised by $2 billion and $1 billion, respectively. Next week's refunding will total $112 billion,
On a related topic, is there a reason why Treasury didn’t extend duration of federal debt when rates were low?
Being cheeky here, but I think the only answer you will ever get to this extremely valid question is the anodyne but all purpose “various supply and demand dynamics.”
The reason is incompetence….the 10 year bouncing twice from .55% was a clarion call to short fixed income…Feed the ducks….
Some folks may see this as stupid, but I’ve been loading up on T-based money markets for a few months now. That was and is earning me ~5.2%. But in the past 10 days I have been presented with four new insured muni bond issues, all rated AA and above, all with 7-10 years call protection, and all paying between 5.15 and 5.37%,to provide me with a pre-tax equivalent yield up to 8.5% … insured. Today I took a third of my cash and locked in the highest of these tax-free yields for at least ten years. Money market funds are nice, but not locked in or insured. I noticed in the last few weeks all my munis are priced to yield about 5.3%. I’d be crazy not to up my commitment by 30% as I did today. More of these sweeties are on the way.
Bond insurance is fine if the carrier only has to pay out the occasional one-off default. But back in 2008-2009, more general systemic risks of default rightly called into question the ability of the three large insurers to pay out on a massive number of simultaneous claims.