What debt bubble? Treasury easily sells new 10-year notes

The Treasury had no trouble selling $16 billion in new 10-year notes today, belying worries that investors might choke on the burgeoning supply of government IOUs.

The notes sold at an annualized yield of 2.42%, below expectations. And investors put in $41.4 billion in bids for the securities, indicating substantial demand.

The reception for the notes "should in the near term provide some solace that 10-year Treasury paper in the U.S. still has a strong following," wrote George Goncalves, a bond strategist at Morgan Stanley, in a note to clients after the sale.

That should be a relief to President-elect Barack Obama, who is pushing Congress to approve a huge spending program to jump-start the economy. That would require even more massive borrowing ahead.

One of the biggest debates on Wall Street in recent weeks has been whether Treasury bond yields had fallen to ridiculously low levels, given the supply of debt coming to market this year. Investors pushed yields to record lows as they rushed for safety amid the financial-system meltdown.

"Get out now!" was the headline of Barron’s magazine’s cover story last weekend. The story said the Treasury market had become a "bubble" and advised investors to jettison low-yielding government securities for riskier, higher-yielding bonds.

But some investors already had been doing that in recent weeks. The 10-year T-note yield bottomed at 2.05% on Dec. 30, and snapped back to 2.37% by the end of last week (still far below the mid-October yield of 4.08%).

Meanwhile, yields on corporate, mortgage and municipal bonds have been sliding since mid-December, as I noted here.

For now, there may be enough money looking for a home in bonds to keep pulling private-sector yields down while also keeping the Treasury’s borrowing costs from spiraling higher.

Goldman Sachs & Co. is telling clients to expect a gradual drift higher in Treasury yields this year. The firm expects the 10-year T-note yield to be between 3% and 3.25% by year's end.

-- Tom Petruno

Photo: President-elect Barack Obama at a news conference Wednesday, where he warned of trillion-dollar annual budget deficits ahead. Credit: Chip Somodevilla / Getty Images

Comments

[AMAR DUGGAL]

Thank God, I mean thank dear investors.

[Shannon Melton]

It looks good on the surface, but people like Paco Ahlgren, Peter Schiff, and Marc Faber are putting up some compelling arguments against the dollar and Treasuries. The auction yesterday was good, but look at what happened with the German offering a couple of days ago. I'm not buying it.

Here's an article by Ahlgren yesterday.

http://experienceiseverything.blogspot.com/2009/01/treasury-bubble-update-1709.html

[Misty]

Before considering these analysts' predictions on bonds, you should ask yourself how well they predicted their own company's fate as investment bankers.

[Dave]

In the case of Peter Schiff, he has been very good on predictions.

[D.Reed]

How's this sound? Instead of people having their homes forclosed on, why can't some of the taxpayers bailout money be used to directly help the taxpayers that are in danger of losing their primary residence due to "sub-prime" loan payments rising and or having to take a lower paying job? The way it looks now is, a lot of people are having to walk away from their homes and they end up renting, while an investor steps up to purchase these now reduced properties for 40 to 50 percent of whats owed. I for one would stay in my upside down home loan and be willing to pay a percentage of any profits realized if my loan payment could be adjusted so i could afford it.

[Wiggins]

TheStreet.com posted an interview the other day saying that whether an investor will be hurt by the bursting of the Treasury bubble depends on where they are on the yield curve. Those on the long end will be hurt, while those on the short end will be protected for a while - a couple of years probably. (?)

http://www.thestreet.com/video/10465200/beware-treasuries-buy-agencies-instead.html

Thoughts?