The Treasury has just held a $24 billion 10-Year Treasury Note auction that seems almost baffling.  The auction high rate was 2.14% and the Treasury received $77,38 billion in bids.  Primary dealers were given $7.89 billion, indirect bidders (including foreign central banks) were awarded $8.45 billion, and direct bidders were awarded $8.45 billion.

Where the yield becomes almost hard to imagine is that the 2 1/8% had a median rate of 2.101% and there were even 5% of the tendered bids that were willing to buy AT OR UNDER the mystical 2.00% level.  Loaning the government money for ten-years… At 2.00%??????  It sounds ludicrous.

Some 54.31% were allocated at the high yield and the yield at the auction price of $99.865607 was pegged at 2.14%.

The interest rate gods are going to force investors go chase yield and returns in dividend stocks, mortgage-backed securities, and other income-oriented investments.  Now investors have to hope that Europe doesn’t torpedo the remaining remnants that are left of the global recovery.

Look at how this compares to other lowest yields per Yahoo! Finance data…. Keep in mind that 2.04% was hit this week as well after the FOMC telegraphed a two-year horizon for exceptionally low interest rates.

• Aug 1, 2011    2.17%
• Aug 2, 2010   2.42%
• Jan 2, 2009   2.16%
• Dec 1, 2008   2.04%

These rates are just almost impossible to imagine.  2.00%… or 2.14%?  This is pricing in the notion that another recession is not just impossible to avoid.  The bond market is telling you it is here.  And inflation?  Forget about it.

JON C. OGG

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