The U.S. Treasury just sold $35 billion in two-year notes and the demand for this auction was the highest since last November when equity markets had faced serious weakness in the weeks and months before.  This is called investor fear.  Returns take the back seat against protection of capital.

Today’s $35 billion note auction had a bid-to-cover ratio of 3.95, indicating that nearly 4-times the bids came in than were accepted.  The yield came in at a whopping 0.30%, and that is before income tax.

Indirect bids came in mostly in-line with the prior ranges as the level was 33.5%.  The direct bid level was a bit low at 9%.

The FOMC keeps this zero-rate policy alive and well and banks can hardly bother to invest for two years into Treasury notes that pay 0.3%.

When we see this, we wonder even if more about whether or not the recent note that junk bonds may be sold off too much has even more merit.  S&P said today that the speculative-grade spread was now 678 basis points over Treasury yields.  That spread was listed as 671 basis on Monday, 662 basis points on Friday, and 653 basis points on Thursday.

At the current time the yield curve is as follows:

• 3-Month 0.04%
• 6-Month 0.12%
• 2-Year 0.29+%
• 3-Year 0.41%
• 5-Year 0.77%
• 10-Year 1.79%
• 30-Year 2.89%

 

JON C. OGG

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